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.
So…
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:
E-book: $11.99
Hardcover: $11.89
Doesn’t make sense, right?
Well, here’s how that breaks down between publisher and Amazon:
E-book: $11.99
Publisher: $8.39 (70% of e-book price)
Amazon: $3.60 (30% of e-book price)
Hardcover: $11.89
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.
Stephanie {Luxe Boulevard} says
Thanks for breaking this down. I was wondering this just last week when I went to put an e-book on my Kindle (free for my smartphone and never used it), only to see that the e-book was $17.99. WHAT?! No thanks, was my thought.
I suppose for those always on the go, wanting their books wherever they are at a moments notice this is good. But for stay-at-home mom's like me, I'm good with shelves stacked full of books that will eventually smell of age. 🙂
aspiring_x says
thanks for breaking it down for us nathan! it'll be interesting to watch the evolution of the publishing business over the next few years.
Joshua says
Nathan, that was a fantastic explanation. Thank you for that. What I took away from this is that if you really want to stick it to Amazon, buy the physical copy so they lose money. Right? ;^)
Tiana Smith says
BRILLIANT! I've heard a lot of talk about the agency model, blah, blah, blah. But it all seemed like mumbo jumbo and I couldn't get it. This background helps, thanks for taking the time to put 1,000 words down.
Anna says
Wow. That's all I can say. Thanks for the helpful post!
Bob Mayer says
Something that's being left out of the equation is that publishers also seem to think readers make a choice between buying the hardcover or buying the eBook. But I think most have a strong preference already and stick with it. Also, with more than 30% of the kindle top 100 being self-published, priced usually from .99 to 2.99, publishers have to consider if they are driving readers to a market they have no control and no income from. When a reader sees my latest at .99 as a leader for a series from my backlist I've self-published, then my next co-written from St Martins at $12.99, they have to be getting headaches.
Jesse says
Wow, for a change, something I already knew. But your explanation was far better than mine.
Amazon is more than happy to take the loss because it brings in revenue in other areas of the storefront and other books.
I still think this is going to even out in the end. Once the children stop peeing in the sandbox, they'll actually pick ONE model and ONE format and the ones who'll really make out are the consumers. We shall see.
Istvan Szabo, Ifj. says
Thanks for breaking this down, Nathan.
Cameron Chapman says
I think one thing that's also driving publishers to keep ebook prices on par with hardcover, or at least paperback, books, is that they don't quite know how to market books without bookstores. The entire mainstream publishing industry's marketing efforts are based around getting books on shelves. If those shelves disappear (which they will, in growing numbers, as ebooks gain more market share), it throws their entire marketing strategy into chaos.
Until publishers figure out how to compete without physical shelves, they're going to do everything they can to stop ebooks from taking over too much of the market. Once they get that figured out (if they do?), then we'll likely see a much different landscape for ebook sales, including different pricing strategies.
Vanessa Kelly says
Thanks, Nathan, for your illuminating post on this confusing topic. I worry that many of these discussions don't make any attempt to analysis the intrinsic value of the book itself – regardless of the format of delivery. It's always great to have some light shed on this murky state of affairs!
Steve Masover says
Nicely broken down, Nathan. Ain't capitalism strange??!?
Laurie Gold says
As a longtime ebook reader, the two pricing models create a problem for me. The worst disparity comes in trade paperbacks. Because of print discounting, it is often 20% more expensive for me to buy a digital version of a trade paperback than it would be for me to buy the print copy. I vote with my wallet and end up buying at the UBS, which doesn't benefit publishers or authors. To allow discounting in print but not digitally tells me publishers really aren't interested in having my business.
Mr. D says
Peeing in the sandbox? That's funny!
Ron Earl Phillips says
I noticed this a couple weeks ago when I bought Noah Boyd's AGENT X. It wasn't cheaper, but the discount was ridiculously low the day I bought it. Of course I bundled that with 2 trade novels, both equally discounted, to get the free shipping. 3 books for just around $30, saving $25. My benefit sure and I have no idea how Amazon made money on that sale.
As an aside, I haven't bought top selling book yet for my kindle. So far just mid-list authors priced between $2.95-5.95. Maybe a couple $9.95 titles. Over that, it always seems cheaper to buy the print book.
Stephanie Barr says
What's funny is that it didn't just happen with digital music. Before that, it was videos.
When I was a kid, getting a movie on VHS (or Beta, that's how old I am) would be ~$100. Piracy was rampant because legitimate movies were too expensive to own.
Frantic to protect themselves, movie makers worked all kinds of copy protection into their tapes. But that wasn't the problem. People can get around anything if there's a profit to be made and even law-abiding regular people have a hard time feeling bad about an illegal copy if the legitimate copies are still criminally overpriced.
With people readily able to record movies, however, from commercial-free cable and laserdiscs selling movies for $15-30 (with no digital copy protection), video tapes seemed doomed
BUT, when tapes dropped their prices down to $10-20, suddenly interest in laserdiscs faded as well as much of the interest in piracy. People didn't mind spending $15 on a favorite movie. When DVDs came along, they were smart enough to keep the prices reasonable, and get people to buy them all over again. Because they didn't feel gouged.
If people feel like they aren't being cheated, most people want the legitimate copies. But they don't like feeling cheated. It's the perception that matters.
Digital music folks had to learn it all over again because they didn't pay attention. Looks like publishers are going to do the same thing. If people perceive they're being cheated with e-books, publishers will power their own piracy. And that's just stupid.
K says
not taking on you just got tired of scrolling down to the bottom and I certainly don’t want updates sent to my email account short story it’s greed. Greed. Greed. Greed and the biggest sin of all is that many of the sites claim that they’re offering free books when they’re only offering a couple of pages from a book and then they tell you you got to pay in order to get the book so they’re false advertising online they’re lying about how much it cost in to operate ebooks and there basically freezing the price which oh by the way is illegal according to supreme Court rulings and many other similar cases including price-fixing of gasoline generators tools supplies etc. So to sum up we have deceptive advertising price-fixing price gouging were there charging far more and they’re treating us all like idiots does that sum it up. Good luck in the fight
Anonymous says
"As the music industry found out, annoy digital consumers at your peril."
This is one of the most important points of this post. Readers don't care about the details and the breakdowns. They only care about paying less for an e-book and they don't care what the publisher's problems are. And if they can get a .99 e-book when gas prices are climbing daily and housing values are still dropping, that's where they (we) are going to head.
Mira says
Publishers say homey don't play that.
Ha, ha, ha, ha, ha.
I'm sorry. I'll be back to comment later, if I ever stop laughing.
You are so funny, Nathan.
therealjasonb says
One more thanks–I've always wondered. It does seem confusing, and for me there is no way I'm paying more for an ebook than a hardback. Even if it makes sense, it does seem very wrong somehow.
But anonymous has it write–annoying the consumer is a dangerous game. I'm not sure if books will ever have the same piracy problem that music does, but certainly at some point someone is going to invent something Napster-like that makes piracy a no-brainer, and if people are trying to sell ebooks for 16.99 I think it will catch on. Remember that (I think) one of the big drivers for music piracy was that CDs were approaching 20 bucks each, for no apparent reason, which has obviously changed now. I think I'm at the point where I won't pay more than 10 bucks for an album, either.(Sorry, new REM. I want you, but you are too much!)
Michael Offutt says
Amazon is a fascinating company to watch. Seeing you break the numbers down here using your "napkin math" really brings it all together. It's like there's a war out there as huge companies vie over profits in an attempt to diminish the power one company has over an entire industry.
Anonymous says
Wow, so shortsighted and arrogant of publishers (I'm also still steaming over the idea of limiting library e-book downloads). People WILL pirate more e-books and/or buy the 99 cent ones. I love reading, but there is no way in hell I'm paying that much for an e-book. People do want to pay for things, but only if it's convenient and the price makes intuitive sense. Hence the success of itunes. Personally, I stopped pirating music once easy downloads and reasonably priced songs entered the scene. I have yet to pirate a book, but the same logic applies. I vote with my wallet, and the e-book publishers won't take my hard earned money because they insist on being stuck in the past.
TJWriter says
I've recently become addicted to ebooks and I've found my point to be where the ebook costs more than a mass market paperback. I wait for hardcovers to come out in paperback because I want to support the authors but I read too fast to afford a hardback habit.
I just can't bring myself to pay more than about $8 for an ebook.
Layton Green says
That was a fantastic post. Thank you for explaining that!
Layton Green
http://www.laytongreen.com
The Summoner
A3Writer says
The napkin math is the gross of what the publishers take in per book, so it doesn't actually mean the publisher makes more profit off the hardback because the printing costs have to be absorbed. I'm sure that physical cost of printing is a decent chunk of that hardback's $12.50, whereas there's no print cost for the ebook. The math becomes a little more even at that point for the publisher, correct?
Nathan Bransford says
A3-
Please check out my post from Monday for that info.
D.G. Hudson says
Interesting comparisons at Reddit's site. I'm not sure I would pay a higher price for an e-book. It would have to be exceptional.
This type of pricing where a book that's physical is less expensive than what Reddit calls a 'fancy rental' (e-book) raises that specter of cognitive dissonance in the buyer – 'something's wrong here', and perception in the eyes of the buyer is what determines sales.
I like the idea of Amazon being held back somewhat by the competition and the publishers. When companies become gargantuan, they lose all human sensibility in the search for market share.
The twist and turns of this evolution of e-books is interesting to watch. I just hope authors get some benefit out of all this jockeying for position in the publishing world.
Sommer Leigh says
This is a fantastic break down Nathan! Thank you for making sense of the confusion.
The math and the politics boggles my mind.
Amy says
Thanks for the breakdown! I didn't realize the publisher made less money on the ebook version.
In the end, though, it doesn't matter how well the publishing industry rationalizes the high prices for ebooks. I won't pay them. Paying more for the ebook than for the print book makes me feel like I'm being taken advantage of, and that's a feeling I hate. It's a feeling that's not worth the enjoyment I might get out of the book. I won't buy an ebook that "feels" overpriced, no matter how much math/economics is thrown at me to justify that price.
On the other hand, I don't like buying print anymore either. I prefer ebooks, and my bookshelf is too full for me to buy any more paper books.
So I just bought my first two 99-cent indie books, and I picked up a free sample for a third (option to buy if I like the sample). We'll see how I like them.
mardott says
Thank you for explaining this. It's good to know the goings-on behind things. But I'm not changing my mind. If the ebook costs more (or the same as) the print book, I won't buy either one. I hate that this punishes the author, but I'm just not doing it. No matter how reasonable the explanation.
Daniela Torre says
Great post.
I wonder though… Does Amazon take into consideration private sales from third parties? Obviously they take a percentage of the sales (pennies on the dollar), but has that affected the prices of their own books? These days you can buy used books in excellent condition on Amazon for under $5, whereas you can't do that with an ebook. It seems to me like they're competing with themselves. Is that part of "taking a loss on print books"?
Nathan Bransford says
Daniela-
Used books are a whole 'nother story. I don't know what Amazon's arrangements are with used booksellers, but I'm guessing they take a percentage on every sale.
kellye says
Thank you for this helpful information. The whole situation is frustrating for book lovers. The pricing differences can make publishers look greedy (rightly or wrongly), and that can send consumers away.
Because of a string of unusual circumstances, I own a Kindle, but I also hate monopolies. I buy e-books as well as paperbacks and hardbacks from a variety of sources, use my library and joined Lendle.
The e-revolution can feel scary but also offers great opportunities. I hope people who are smarter than me are working on solutions that are fair to all involved, including readers and authors.
Anonymous says
Great breakdown, Nathan. Thanks.
jesse says
Very interesting. Thank you.
Kristin Laughtin says
Thank you for explaining that! I had only run across a few cases where an ebook cost more than a print version, although it was usually a mass market paperback. The breakdown of who gets what from the agency vs. the wholesale model makes things a lot clearer. I knew it couldn't just be that Amazon seriously discounts their hardcovers most of the time. It'll be interesting to watch this continued to evolve and these discrepancies to be smoothed out (or not) based on the market and what consumers are willing to buy. They're certainly not going to be willing to pay more for ebooks forever, especially when piracy is an option. An unfortunate one, but one nonetheless.
As for Amazon selling used books, I believe they usually take 15%. At least, that's been their commission whenever I sell used textbooks.
Lexi says
Publishers have laid down a welcome mat, not just for self-publishers (thanks, guys) but for pirates.
Anonymous says
I'm not sure that this is completely accurate. Although there is secrecy around the Amazon contract a few publishers have come forward to mention that it hasn't the worked the way you describe.
They claim that when Amazon lowered prices, they did not necessarily pay the publisher 50% of the list price, only of the sale price. So the math is actually quite different.
Is there something else you're basing your description on?
Here's some of what I'm referring to:
https://www.thenation.com/article/37484/trouble-amazon
https://www.publishersweekly.com/pw/by-topic/digital/retailing/article/43427-ioba-takes-on-amazon-in-europe.html
Nathan Bransford says
Anon-
Really? From the Nation article :
"A decade ago the average wholesale discount for a book was in the region of 40 percent. Today it's more like 50 percent, and for many of the large outlets it can be 60 percent or more"
The average is 50%. I'm not privy to the terms between Amazon and publishers. If the discount is 60% Amazon would make a slight profit on the sale on the Larssen sale, but the basic point remains: publishers make more money on the hardcover and aren't inclined to see prices erode.
Marilyn Peake says
First, I have to say…"Publishers Say Homey Don't Play That" – HaHaHaHa! That’s hilarious!
OK, now the serious stuff…
While publishers sort this out and try to keep their eBook prices high, many customers have made up their minds that they’ll only buy the less expensive eBooks. Many people will no longer pay more than $2.99 for eBooks and prefer to pay 99 cents. The problem with holding onto higher prices for eBooks is that the traditional publishers are losing customers. It doesn’t matter to customers what the publishers do; they just want the best price for the things they purchase. When Amazon was new, it operated for years without making any profit. Sometimes temporarily keeping prices low leads to cornering the market later on.
Yesterday, I went shopping at Best Buy and Target. I was amazed at what I found. Best Buy had a huge Kindle display at the front of their store, while all the rest of their electronic equipment, including their video game consoles, was at the back of the store! At Target, Kindles were being sold next to hanging racks of gift cards for Kindle and iPad. I ended up walking past a book section with hardcovers and paperbacks, thought how quaint that looked, and realized it’s been a while since I read anything in those formats. I hardly ever read books in paperback or hardcover anymore, even though I own bookshelves filled with both.
Nathan Bransford says
Oh- also, the math in my article is for the Big 6 publishers, and as the Nation articles alludes, I've heard anecdotally of smaller publishers getting squeezed more on both discounts and the agency model.
glitrbug says
I wonder what percentage of Kindle 1 buyers saw this price-hike coming. I know I have been downloading all the free books I can find from lots of different sites. Mostly Smashwords and publishers giving away books for reviews or trying to get you to buy the rest of the series. I forget how many TB my latest external hard drive is, but there's plenty of space for non-Amazon books. I made a point of buying whatever books I found that sounded interesting and were within my price-range. Last time I checked, I had at least 10 years worth of 2 ebooks a week saved up plus stacks of used DTB. Publishers can try to justify their prices all they want. If I can't afford their books, I'll happily read something else.
Jaysonc says
I was wondering when the digital revolution was going to impact the publishing world because now it seems it has or is at the very least beginning to. I don't see the problem with charging the same price for an e-book and hardback. iTunes charges the same for a digital album as about the same as CD.
I'll be very interested to see if someone creates the iTunes version for e-books.
Melissa says
To lift from a comment posted in a freelance writers' forum, the only people who'll end up making a big profit off of the indie revolution are eBook bundlers and Amazon. I find it extremely difficult to believe that the publishing industry cannot find a way to cut costs. The music industry soon found out that it couldn't afford the extravagant salaries and overhead to stay in business, which is why many big name studios went the way of the dinosaur.
I live in Austin. Ask all of the producers and sound engineers about how they've had to lower the cost of services to remain competitive. Why should musicians — yes, even signed musicians — record at Willie Nelson's studio for $500 an hour, when they can get the same quality of services from a former industry pro with the *very same equipment* in a small home studio for $100, or even less?
I think we'll see a cottage industry of full-service eBook bundlers who do everything from proofing to packaging for the low, low cost of $500. Really good freelancers are desperate for work.
Jaysonc says
I can see it now…
"Small town publishing with a big city approach"
Matthew MacNish says
This is genius (the post, not the topic). Only you could break it down in a way that I could actually understand.
But … you may have to change the name of your blog from NB – author, to NB – e-book nerd. I mean that in the coolest way possible.
Mira says
I'm still giggling about the publishers homey thing.
This is such an outstanding essay. I can't hardly comment on the topic, because I'm so impressed with the organization and accessiblity of the essay itself. So nicely done.
If you don't publish non-fiction at some point in your life, Nathan, it will be a tragedy.
On topic, I am totally willing to pay exactly the same for an e-book that I am for a paperback. Between $5.99 – $7.99 feels right. And I'll pay up to 15 bucks for an e-book I really want. And if I HAVE to have it, like the last Harry Potter book, where I waited years, and it was the LAST ONE, let's be honest, I would have sold my car.
It is fascinating, though, to watch the power plays. Thank you so much, Nathan, for explaining it all to us so clearly.
Tamara says
I'm just astonished you can get books for so cheap over there! In Australia, hardcovers are over $30…
Adam iwritereadrate says
Really interesting article – gave a much better insight to their commercial models. Personally like competition is key, the digital revolution needs to be unsandboxed, democratic, and with writers/readers best interests (perhaps I'm dreaming when it comes to the big players…!).
Enjoyed reading your article.
All the best
Adam
Tammy Salyer says
I have really wondered about this. Thanks so much for explaining it.
Nicole MacDonald says
Well now I begin to understand! Oh well it's the publishers loss, I refuse to pay over $5.00 for an ebook. With the sample option I can easily weed out books I won't like and hey, I'm always happy to support a fellow indie author 🙂
The Arrival, Book 1 of the BirthRight trilogy available now
Anonymous says
$12.99 for an e-book? The big pubs are way, way behind
Most digital first pubs sell their books for half that. Big pubs need to get with the program. People pay more for a tangible product. Less for an intangible one.
Charging the same for an ebook only reinforces (esp where I am) that ebooks 'aren't worth promoting'. Of course they aren't, not if the price is the same for e and print!
For many people the point of ebooks is this: try out new writers, try out things you might not shell out loads for-but if it;s cheap you'll give t a go. And if you like, you'll buy the print as a 'keeper'
I buy lots of ebooks, a $6 or less. If I like them, I buy the print copy to put on my shelf. If I don't like, I haven't wasted the money I would have on a print copy that then gets binned.
Seriously. big pubs need to get it -and what they needto get is why people buy ebooks. (again, where I am, so far)