Nathan Bransford, Author


Thursday, March 10, 2011

Why Some E-Books Cost More Than the Hardcover

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.






111 comments:

Stephanie {Luxe Boulevard} said...

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 said...

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 said...

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 said...

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 said...

Wow. That's all I can say. Thanks for the helpful post!

Bob Mayer said...

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 said...

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. said...

Thanks for breaking this down, Nathan.

Cameron Chapman said...

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 said...

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 said...

Nicely broken down, Nathan. Ain't capitalism strange??!?

Laurie Gold said...

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 said...

Peeing in the sandbox? That's funny!

Ron Earl Phillips said...

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 said...

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.

Anonymous said...

"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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

That was a fantastic post. Thank you for explaining that!

Layton Green
www.laytongreen.com
The Summoner

A3Writer said...

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 said...

A3-

Please check out my post from Monday for that info.

D.G. Hudson said...

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 said...

This is a fantastic break down Nathan! Thank you for making sense of the confusion.

The math and the politics boggles my mind.

Amy said...

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 said...

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 said...

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 said...

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 said...

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 said...

Great breakdown, Nathan. Thanks.

jesse said...

Very interesting. Thank you.

Kristin Laughtin said...

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 said...

Publishers have laid down a welcome mat, not just for self-publishers (thanks, guys) but for pirates.

Anonymous said...

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:
http://www.thenation.com/article/37484/trouble-amazon
http://www.publishersweekly.com/pw/by-topic/digital/retailing/article/43427-ioba-takes-on-amazon-in-europe.html

Nathan Bransford said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

I can see it now...

"Small town publishing with a big city approach"

Matthew MacNish said...

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 said...

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 said...

I'm just astonished you can get books for so cheap over there! In Australia, hardcovers are over $30...

Adam iwritereadrate said...

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 said...

I have really wondered about this. Thanks so much for explaining it.

Nicole MacDonald said...

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 said...

$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)

Larry Marshall said...

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 said...

Larry-

I haven't heard that breakdown before, I thought those numbers are for self-publishing through Amazon?

Elle Strauss said...

Thanks for making some sense of this. I do hope book stores stick around for a long time.

Julianne MacLean said...

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 said...

Thanks, Julianne!

Greta Marlow said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

When a print book costs more than an eBook, I will usually buy a used paperback when available.

Hillsy said...

you missed a line off the bottom of your post...

"End of discussion"

....as now it is.

Renee Sweet said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

Very glad to hear that, Nathan! Have a great weekend!

Mira said...
This comment has been removed by the author.
Mira said...

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 said...

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 said...

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 said...

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 said...

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 said...

"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 said...

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 said...

Randy Ingermanson retooled your numbers and added a few. Take a look:

http://www.advancedfictionwriting.com/blog/2011/03/11/the-economics-of-e-books/

Nathan Bransford said...

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 said...

Er, I meant my example was new hardcover/new e-book, his was one with trade available.

Coffee. More.

Tiffany said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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 said...

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.........

Sharon said...

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..........

Chris said...

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.

greggorievich said...

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.

SkinnyRichCoach said...

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!

Anonymous said...

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 said...

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.

Anonymous said...

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!

Richard said...

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.

Susan said...

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...

Anonymous said...

Considering I pay more for my ebook, can I resell it like I can a paperbook???

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