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.
Larry Marshall says
Nathan, I think you need to redo your math. It might give you a bit of insight into how wrong-headed the publisher's approach is here.
The truth is, if they sell the eBook for $11.99, they only get 35% of the price, not 70% as you describe it. It's only for books priced between $2.99 and $9.99 that they get 70%. Thus:
$11.99 -> $4.19 to publisher
$9.99 -> $6.99 to publisher
In short, the agency model is designed to protect hardcover book sales and nothing else. There are numerous quotes from the big six that support that as their goal.
They know they're losing lots of money in the eBook world with the agency model. It's akin to not wanting to give up on your horse business while trying to sell cars but that's what's going on.
Cheers — Larry
Nathan Bransford says
Larry-
I haven't heard that breakdown before, I thought those numbers are for self-publishing through Amazon?
Elle Strauss says
Thanks for making some sense of this. I do hope book stores stick around for a long time.
Julianne MacLean says
Totally off topic here. I just wanted to wish you the best of luck with your Jacob Wonderbar book in May. Looks great.
Now back to the topic…
Nathan Bransford says
Thanks, Julianne!
Greta Marlow says
Thank you for this whole series of posts on traditional publishing, e-publishing, and self-publishing. Very informative and full of food for thought.
Jay says
Unless disturbed by an outside force (the government), businesses will charge what consumers are willing to pay. A free(ish) market is a tug of war between consumers and businesses: consumers will seek out the lowest price while businesses charge as much as they can. Cost of production is irrelevant except to determine what price NOT to fall below.
Hanny says
This e-book phenom is just bananas. I can't believe all the opportunity and development that's happened so fast. Can't wait to see where it all goes, but I'm guessing that iPods will become self-aware and take over the planet and make batteries out of us like in "The Matrix."
karen wester newton says
I really think publishers are missing one key fact with their current strategy. In the past, they would put out the hardback first, then a year or so later the paperback. Readers who didn't want the hardback, either because of cost or space issues, would notice the paperback on the New Releases table when they went to the book store, and say, "Great, it's out; now I'll buy it."
A lot of eBook buyers don't go to the bookstore anymore. There won't be new reviews when the paperback comes out, and the publishers lower the price on the ebook (if they remember; it does not always happen). How will the ebook reader know the book he was interested is now a more reasonably priced ebook? Generally speaking, he probably won't know. So publishers may be protecting the revenue they get from the reader who will buy the hardback instead, but they are also losing revenue from the reader who doesn't want the hardback at all and will only buy the ebook. It's question of which number is greater. As the number of ebook buyers grows, publishers need to find a way to not only manage price changes but let readers know about the changes.
Jenn Crowell says
Add me to the chorus of thanks for the enigmatic pricing breakdown. To say nothing of the riotous laughter inspired by "Publishers Say Homey Don't Play That," which has to be in the running for THE best blog post section heading title ever.
Susan Kaye Quinn says
That last line was also the most important. BTW, I noticed this effect (e-book higher price than paperback,mind you) BEFORE the agency model even came into existence. So. I think that all machinations aside, this cannot hold. It didn't make sense to me the first time I noticed it, and it still doesn't make "consumer" sense. Which, needs to count for something, as you say, so the whole industry doesn't go into a (further) world of hurt.
Just my 2 cents. 🙂
Pen and Ink says
It's also nice when Amazon actually pays the publisher. They are a little behind on that according to my publisher, Lynda Burch of Guardian Angel Publishing.
So, of course is Borders.
Marion says
I'm dizzy! Thanks, Nathan, for clarifying. Joshua, let's stick it to Amazon (I think). Therealjasonb, I can tell you're a writer because of your Freudian slip (worried?)
Anonymous says
When a print book costs more than an eBook, I will usually buy a used paperback when available.
Hillsy says
you missed a line off the bottom of your post…
"End of discussion"
….as now it is.
Renee Sweet says
I just wanted to say thank you for taking the time to provide a clear, concise explanation. I really appreciate all the time and effort you put into this blog. 🙂
colleenwalshfong says
Thanks for this useful info. As a new author trying to learn as much as possible about publishing as quickly as possible, I get dizzy with how quickly the ground is shifting in the publishing world. This post adds to my knowledge base and helps me to figure out which way to go.
Best wishes on your recent move to the tech industry!
Robert A Meacham says
Nathan,
Great breakdown explaining the margin compression that is taking place .
The .99 cent folks will continue reaping generous sales and the publisher will gain a 30% margin and anything published over $1.99 reaps a 70% margin for the publisher ( author)
It is all about unit sales that create gross dollars, not necessarily gross %.
Rachel says
You may have taken a thousand words, but hot damn, what a great explanation. I had no idea what "agency model" meant before even though I'd heard the term a lot. And now I feel totally savvy. Thank you so much!
Marilyn Peake says
I hope you're OK, Nathan. I heard that the tsunami reached California, and it's not like you to have gone without adding a new Blog post this late in the day.
Nathan Bransford says
I'm fine, thanks! I was at a show last night and didn't have a chance to put together TWIB. I'll post it in the morning.
Marilyn Peake says
Very glad to hear that, Nathan! Have a great weekend!
Mira says
Try again. Don't need to give you advice, right?
I'm glad you checked Marilyn, I was abit concerned too. I'm very glad that all of us are the West Coast are safe, including you, of course, Nathan. And my heart goes out to those in Japan.
NickerNotes says
I really balk at paying more than $5.99 for an ebook (probably because I know how much it costs to publish one). If the book is $0.99, and it looks interesting, I just buy it. If it is more than $5, I usually download a sample first, which I eventually get around to reading. If it is something I really want to read and the hardcover is >= $25 and the ebook is >=$9.99, I go to Half Price Books and look for the paperback for $3-4. I've read a number of indie authors on Kindle and some are as good as/better than Big 6 published.
Kate says
Thanks again for the breakdown. I've been wanting to say this somewhere, though: I refuse to pay more for an electronic file than is being charged for a digital copy. Regardless of the reason behind it, it just seems unfair. If a Kindle edition is more expensive than a hardcover, I typically just don't buy the book– I'll pick it up at the library someday instead. And I aspire to make money as a writer one day, and anticipate the same response from my future readers. So… just putting that out there.
Mahak Jain says
Thank you — my friend (who is not a publishing professional) and I just happened to be discussing this the other day and unfortunately I couldn't explain to her what was going on (her instinct as a consumer was to be angry at publishers). This was exactly what I needed!
D.G. Hudson says
Thanks Marilyn, for asking about Nathan. It was unusual for nothing to show for so long on a Friday.
We're safe on the west coast (mainland) of British Columbia, the west coast of Vancouver Island bears the brunt of any bad weather for us. Our hearts go out to many who have relatives in Japan.
Our worrying just shows we care when our fave blogger goes missing in action (or at least it's perceived that way).
no-bull-steve says
"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 took all those words for you to say that and for me to say…..
"YEP!!!"
(not to mention the $2.99 and $3.99 and $5.99 and $7.99 best sellers!!!)
J. T. Shea says
Thanks for the trip down the rabbit hole, Mr. White Rabbit…I mean Nathan. Interesting how both Amazon and the publishers are willing to lose money in the short term to make more in the long term.
1,000 words? I wonder how many will we add. Over 8,000 so far.
Laurie Gold makes good points about the price relationship between e-books and trade paperbacks. I cannot see e-book prices equaling those of trade paperbacks in the long term, much less exceeding them, as they now frequently do. Indeed, buyers are likely to see e-books as less valuable than mass market paperbacks.
New and possibly enhanced e-books at the start of their windowing cycle may command higher prices, but probably not hardcover list prices. Hardcover DISCOUNTED prices are a whole different ball game. Windowing and discounting complicate all our estimates.
A further complication is print books' second hand value, as pointed out by Daniela Torre. Another story, indeed, but also part of this story.
Adam, 'unsandboxed'!? With or without pee?
Daniel Smith says
Randy Ingermanson retooled your numbers and added a few. Take a look:
https://www.advancedfictionwriting.com/blog/2011/03/11/the-economics-of-e-books/
Nathan Bransford says
Thanks, Daniel. I'm kind of confused why he took my example (new hardcover/new paperback) and applied it to one with a trade paperback edition available. But ah well.
Nathan Bransford says
Er, I meant my example was new hardcover/new e-book, his was one with trade available.
Coffee. More.
Tiffany says
Great post! I'm going to share your link with my readers! Technology is great and all but we really need to be careful that we don't screw ourselves in the process. Personally, I love a hard copy book! I don't want everything electronic. Libraries are wonderful, book stores are wonderful and e-copies are great for travel etc. I wouldn't want just a Kindle. Thanks for explaining all the little bits behind this! Amazon did a great job with the Kindle and their market share but they won't be able to take a loss forever…
J.A. Marlow says
For 15 years I only bought used books due to economic reasons. No money went to the publishing houses or authors.
Then I bought a Kindle. I could increase the font so that suddenly I could read comfortably again (the print in the last few years is getting far too small in so many books). Suddenly I'm buying and reading like crazy, and the money I spend IS going to the publishing houses and authors.
That is, if their prices are reasonable. If the price of the ebook version is lower than the print version.
Random House opted out of the Agency model for so long. Well, this past week that changed. And the old books that are 30+ old that I was slowly buying in ebook format, after first buying in paperback way-back-when, went up in price. To $8 and above?
For books that old? When I can get paper replacements for under a dollar?
Good grief.
Well, goodbye Random House. You were getting money after I already owned the book, just so I could have it in ebook format. Not now. There are plenty of smaller presses and Indies with reasonable prices I can buy. I'll miss my favorite authors, but enough is enough.
Newsflash Big Guys: Your games will not stop me from reading on my ereader or buying for my ereader. It will not slow me down a bit in making a nearly-complete switch to the digital format. It will only drive me to other authors and publishing houses.
Your loss is their gain.
J.A. Marlow
Night of the Aurora – A new life in Alaska, a massive aurora… and a hidden spaceship…
Anonymous says
The difference is when $x goes to the publisher for the dead tree version they have to subtract out production, shipping, storage, and remainders costs. When $y goes for the ebook, no production cost, to shipping cost, no storage cost, no returns cost.
Nathan Bransford says
anon-
I'm counting that in the total for print. From everything I heard as an agent those costs are not that significant on a per-copy basis with the scale the publishers have.
Now, as print runs lessen and as print winds down and scale becomes reduced, those may well translate to real costs. But for now e-books don't represent particularly significant savings.
Anonymous says
When I first got my Kindle every book was discounted by Amazon — and I bought lots of books. Then I noticed that not only had prices gone up, but a number of paperbacks (Mass Market versions) were not discounted at all and had a notice "price set by publisher." I stopped — and won't — buy them. I can get a 10% discount on any of them at Books-A-Million, or 25% if they're at Wal-Mart. Why should I pay full price?
Now, what I don't understand in this analysis of publishing costs is why coming up with an average cost for a printed book that a large company puts in many B&M stores makes real sense. In deciding to physically print that book there is an immediate cost to the budget of some fairly significant amount. That amount (payment for printing some quantity of books so each store will have XX copies) has to be paid to the printer. Paid. Up front. And I believe that printer gets paid whether the book sells or not — yes? So the "true" cost of a printed book can only be determined after all sales are completed. Admittedly, the claim is that when one prints several thousands of books the "cost per book" decreases from the printer — but to recover that cost you have to sell those books. And, looking at the 'remainder' sales in the book stores, there are a heck of a lot of these not selling. So they're now on a table priced at $3 instead of $30.
If a publisher decides to print an e-book there is NO budget item that says "pay the printer." And server/IT costs can't possibly run anywhere near what that total printing bill would be. So marketing, editing, cover, etc. remain the same, but a hard $$ budget item has disappeared. Also disappeared is the staffing/tracking needed to handle the physical copies (and returns) from all those B&M stores.
Don't try to tell me that you can't give me any discount on an e-book, Mr. Publisher.
All IMHO, of course.
And, Nathan, I also believe the 70% to author quoted is for self-published Kindle books.
Anonymous says
I will not over pay for a e-book and I will not buy a print book anymore. The Kindle will be able to borrow from a library soon and the authors and publishers that overprice their novels will not get a penny from me for them! It's funny how this tactic is just going to be taking money out of the writers pockets, I say they deserve every loss of sale they acquire by doing this!!!
teazombie says
Except that this explanation does not look at the fact that out of the publisher's cut, they are not paying for the printing, storing or shipping costs of the book and thus their overall take, even on a reduced cut is probably higher.
Nathan Bransford says
teazombie-
Well, the thing is that paper and shipping don't cost very much and are a relatively small factor in the overall cost. More background here.
Charles says
You claim that in the agency model that the publisher can often get less money for a sale but you don't take into account the costs that the publisher has in producing the physical copy which is completely cut out for the ebook; not just in printing but in inventory and distribution.
How the publishing industry ever accepted a wholesale model for sale of e-books just boggles the mind as well. Retailers of physical books keep half of full list price because they take a lot of risk in stocking books that they then must put effort into selling and delivering to the consumer. In an e-book model it is risk free as there should be no initial outlay but money should be passed to the publisher when a purchase is made. Frankly I think the agency model at 70:30 is weighted too heavily in favour of the retailer and it won't last.
Tim says
I'm just hoping that things will eventually shift away from this silly notion of 70/30 and forcing ebooks to pretty much match discounted hardcover prices.
It just doesn't make sense to sell ebooks at such an extravagant price when there is no risk and no inventory or distribution cost involved.
And publishers wonder why so many people don't buy ebooks but just download them as torrents…
Don't authors have much control over publishing? It just goes to show that if you want to make customers happy, maybe forgoing conventional publishing is a better overall choice; especially if your aim is electronic distribution of your work.
ops12 says
The excuse for high priced books was always "paper costs a lot to print". E-books don't use paper, therefore their profit margin is substantially higher than with a printed copy.
Timur Izhbulatov says
Thanks for the detailed explanation.
I would only add that the whole situation is possible because of the way the society satisfy its needs.
Sacha says
I checked the pricing strategy on cosmox.be (a local online media store) and they sell ebooks at exactly the same price as the paper version.
Scott Stillwell says
Great Post! The thing about this that really burns my biscuits is that taking the loss on the hardcover and placing the price so close to that of the e-book sounds like a perfect strategy to kill more B&M competition. There's nothing wrong with e-books or online shopping, but I'd like to still have the option of walking into an actual bookstore once in a while (weekly, when possible 🙂
Anonymous says
I've noticed a new ploy by publishers: keeping the same high price on ebooks, but also again raising the price of the paper versions so that they're even more than the ebook. So if you're complaining now that the ebook you want is three or four dollars more than the paper edition, don't worry, the paper version will likely soon be once again higher than the ebook. Lol, talk about underhanded.
Anonymous says
Great article and analysis. But there are three comments I would make: first, to address marginal costs of print versus e-books (you say in a comment that the paper and ink are cheap, but I'm not sure it's such a small fraction of the revenues applicable to the publisher after paying the author).
Second, Amazon has additional revenue streams which can disguise their price, namely shipping and handling fees. To be fair, they offer free shipping on some orders, but it does play into the equation.
Finally, ebook readers provide yet another factor in the financial equation: Amazon may make a profit or take a loss on the hardware and still profit based on the total revenue stream (hardware plus books).
Anonymous says
Here in the UK the situation is made worse by the simple fact that paper books are exempt from VAT (our Sales Tax) but e-books are not. So in the UK an e-book includes a 20% markup that goes straight to the taxman!
Sharon says
I still think it's BS. If the publisher didn't actually incur the expense of printing and shipping the book, then the difference in expense should be passed down to the e-customer. The profit margin would remain the same for both the publisher and the bookseller………