Some Thoughts on eBook Pricing

One of my primary sources of information about the book publishing industry is Publishers Lunch Deluxe. It is published every workday by PublishersMarketplace as part of its premium membership service. If you are an author, agent, or publisher, it is must reading.

Magnifying Glass Over a Price Tag - Photo courtesy of ©iStockphoto.com/alexsl, Image #6139533

Photo courtesy of ©iStockphoto.com/alexsl

Last week the New York Times published “E-Book Price Increase May Stir Readers’ Passions.” Michael Cader, the editor of Publishers Lunch Deluxe, took issue with the article, noting that “some people will automatically take it seriously, despite the anecdotal reporting and absence of any data.” He then exhorted,

[P]ublishing people who care about these pricing discussions need to get in the online forums and start issuing press releases and find other ways to address readers honestly about price. The price landscape, and shift to an agency model, is honestly baffling to most people and there are a lot of price myths out there.

In that spirit, I have taken eight of his “talking points” and provided my commentary.

  1. The eBook price of $9.99 was never the top price. In our own monitoring of Amazon’s Kindle products, we have seen that 30% of them are priced above $9.99. (Kobo’s research confirms this.) The bestseller lists regularly include commercial titles above the $9.99 price point. People are buying these eBooks. I have conducted a limited test myself on my own eBooks. Granted, they are highly specialized and my audience is limited. Nevertheless, I price-tested them at $9.99 and $19.97 and saw no difference in demand.
  2. Surveys show many people will pay more than $9.99 for eBooks. As demonstrated by their own behavior, many people are already paying more than $9.99. Some of those surveyed say they will wait for prices to go down, just as they do now while waiting for a hardcover book to be released in paperback. However, I have argued for years that people don’t buy a price point; they buy a solution (non-fiction) or entertainment (fiction). As long as the price is within a range of reason, it is a non-issue. Those in the industry make more of this than is warranted.
  3. Brand new eBooks sold at $9.99 are almost always sold at a loss by the e-tailer. As Publishers Lunch Deluxe said, “When a company with a $50 billion market cap [Amazon] can sell selected product at a loss and still make their biggest profits ever, you have to wonder about the bargain.” As publishers, Amazon is not our only customer. We want to ensure a more level playing field, so that smaller and local retailers have a fighting chance. We also want to ensure that our customers have a wide range of real bookstores and online eBookstores to choose from.
  4. The promise of cheap eBooks was made by companies who don’t have to produce the content. Amazon arrived at the $9.99 price point as a way for readers to justify their purchase of a Kindle. Sony followed suit to match Amazon. Then Wal-mart, Target, and others offered the physical editions of bestsellers through their online stores during the last holiday selling season. None of these companies has to acquire, develop, or package the content. None of them has to pay royalty advances to authors or invest in physical inventory or accounts receivable. These are not trivial investments, I assure you.
  5. People who can afford to buy an eReader can afford the proposed eBook prices. Whenever the owner of a $300 product says they “can’t afford” to pay $3.00 to $5.00 more for something, what they really mean is “I really prefer not to pay more.” In fact, they would probably prefer to pay nothing. As a consumer, I agree. The problem is that I, as a publisher, can’t find authors who will write for nothing. Neither can I find employees who will work for free. One of the thing I learned about consumer research a long time ago is that there is a fundamental difference between what people say they prefer and what they actually do. Too many publishers and booksellers are responding to consumer preferences rather than consumer behavior. In the process, they are leaving money on the table.
  6. Publishers are actually lowering their eBook prices. In reporting on eBook prices, many recent stories assert that publishers are raising prices. This is baloney. Contrary to this, all the publishers I know are lowering their retail ebook prices by 20–50 percent compared to the retail price of the physical book. Publishers understand that it costs less to deliver an eBook than a physical book. However, the cost is not zero, as some would suggest. Publishers have costs to recoup—acquisition, royalty, editorial development, formatting, marketing, and even digital delivery. We are charged by our shareholders to make a profit. While we can sell these books at less than the price we charge for physical books, we have a difficult time make a $9.99 business model work.
  7. The new “price ceiling” is going to be $12.99 more often than not. How do I know this? From talking with other publishers. This point is being lost, inside and outside the publishing industry, since no one is supposed to talk about their Apple deals in too much detail. But the fact is, the price differential is far less substantial that the press would like you to believe. I don’t know of a single publisher who is planning to charge the same amount for eBooks as they charge for physical books. As I stated above, most have either reduced—or plan to reduce—their eBook prices by 20–50%.
  8. The biggest obstacle for eBooks is still the price of the device. Honestly, I never hear anyone complaining about the price of eBooks. I hear lots and lots of people complaining about the price of eBook readers. This is the biggest barrier to the digital revolution. I have said from the beginning that Amazon should follow the razor blade model of marketing: give away the razor and charge for the blades. Granted an eBook reader costs more to produce than a razor. But I believe they should still sell the Kindle dirt cheap, even if they have to take a loss, and then sell the books at a profit. Make it easy for people to get started and then let them experience the convenience of eBooks.

Obviously, I am writing from the perspective of a publisher. I am not averse to change, as I have demonstrated repeatedly. I know the market is shifting. I believe digital publishing will change forever the way that we do business. However, that does not mean we have to “give away the farm”—or our content.

I am still a firm believer that people will pay for compelling content, provided big retailers don’t devalue it by artificially lowering the price to serve their own strategic interests at the expense of everyone else in the supply chain.

Note: After I wrote this, I discovered that Mike Shatzkin also wrote a post, based on the Publishers Lunch Deluxe article. He offers a different perspective, but well worth reading.

Question: If you were a publisher, how would you price your content and why?
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  • Lisa Dore

    I'm certainly interested in the new technology that's coming our way concerning book publishing (digital books, E-Books, etc.). Thanks for you valuable information. I'm intrigued!

    I am a Christian writer. For the past 30 years or so, I've diligently explored an area that many Christian writers and schalors have longed to answer concerning the Trinity. I'm presently in the process of completing this nonfiction, Biblical work. I'd lovean opportunity to share the contents, introduction and first chapter with you through Thomas Nelson Publishers. Michael, what do you suggest? Lisa

  • Pingback: E-book Topic « shiyan

  • Kathryn

    5. Well, I read e books through my blackberry, so the cost of the reader is nil, I'd still have to have a phone with business apps. So the reader unit cost pointr is moot for many.

  • Scott_ellsworth

    I have over 3000 paper books on my shelves, and I dearly love my nine month old ipad as a reading device. I expect to buy more than half my new books next year in electronic form. Based on my own experience, the following things seem true.

    Our family buys a couple hundred books a year.

    * I prefer the Apple iBooks reader app to the kindle, b&n, or borders apps. I know people who prefer the kindle app. We should be able to use any reader we want, including free or opes source readers on minority platforms. DRM gets in the paying customer’s way.

    * Bestsellers are worth about $15 to me. Most are not sold that cheaply, so I am not going to see many bestsellers next year. I did get a great deal on the last Harry Potter book the day it came out, but that is unusual.

    * Mass market books are worth $7-$8 to me. When they cost more than that, I wait for a sale.

    * eBooks should cost about 10-15% less than corresponding mass market books. An ebook for $5 is a no-brainer.

    * I would pay a small amount more if authors got it as a royalty. For example, if Baen offerred to let me pay, say, $6 instead of $5 for an ebook, and promised the extra dollar to the author, I would pay it in every case. If they offered to let my pay $7 with the extra $2 spilt between the editor/proofreader/layout/artist and the author, I would likely pay it. If they charged the same $8, again, I am not sure whether I would.

    * Baen is a wonderful publisher from a customer perspective, as is OReilly – they trust us, they do not apply DRM, and they provide the books in formats for every device and reader app. I give them the majority of my eBook buying dollars for now. If you want some of that money, do as they do. In the last month, we have bought over twenty Baen eBooks.

    * kobo books are poorly formatted. Even after removing the DRM, they do not work well in iBooks, my preferred reader. I only pay cash to Borders for them so that the author and publisher get fair compensation for their work.

    * DRM hurts the author and the publisher. People find a way to remove it, and for kobo books, at least, I am going to have a better experience, with better cover art and better tables of contents, from a pirated book found on the internet than a legally purchased one. Think about that – in order to give you the money you deserve for creating a book I like, I have to jump through hoops. It would be easier, cheaper, and I would have a better product if I just stole the books. Instead, I jump through hoops – this is not a way to grow an industry.

    In conclusion, eBooks are looking like the future of publishing. Customers know what they want – publishers must find a way to give them the books they want, without needless DRM, and with sustainable pricing that fairly compensates authors, editors, artists, publishers, and sellers. Ticking off the customer is not a great way to make that happen.

    Scott

  • http://twitter.com/jwinske John Winske

    But here is the big question why is an ebook more expensive than a paperback. As a for instance Martha Raddatz book today published in 2008 is $6 in paperback and $12.99 in ebook this to me appears ridiculous.

    • http://michaelhyatt.com Michael Hyatt

      I have no idea. That does sound stupid.

  • Jason

    I don’t mind paying the same price for an e-book as the physical book, but most of the titles I find have the e-book at $9.99, or I can get the paperback for $6.99.

    $3.00 isn’t that much, but at a book a week that’s $156 a year over physical book prices. That adds up. I like reading on my Kindle, but I’m finding a lack of content that’s affordable or available.

  • Jason

    One other thought. I would love to see publishers go the route of movie studios. I would gladly buy a hardcover over a paperback if it came with a digital copy of the same media!

    That would be awesome!

  • Doug Wilkerson

     The only problem I have is paying *more* for the Kindle edition.  When both the paperback and hardcover are available at the same price (or less), then it seems like the publishers taking advantage of the consumers.  I don’t think price ceilings are necessary.  If a hardcover is selling for 19.99, I’m happy to pay 15.99 for the same book–you save money, I save money, we both win.  I might even be willing to pay the same price as a mass market paperback, figuring YOU save money, and I get a little convenience.  But more?  For a digital copy?  

  • http://www.123ebookdownload.com/category/Information-Systems-Ebooks-Download/ TRX

    That said, I love print books but read mostly ebooks on my Torch for many of the reasons listed: easily portable, have lots of selection at hand, can read in the dark easily. LDAP