Are E-Books Fairly Priced?
The current price of most digital books ranges between $11 and $15, but discount book retailers offer print copies at similar prices, sparking intense debate among publishers, authors, retailers, and consumers. The price parity creates questions in consumers’ minds: why is a digital copy as much as a paperback, or even hardcover, copy of a book?
Additionally, retailers like Amazon are increasingly at odds with publishers as the e-publishing industry heats up, and pricing has emerged as one of the key fronts of control. But who’s really winning in the battle over e-books? And why is an e-book $15, anyway?
How It Got This Way
E-book prices were initially set by retailers. Amazon pioneered e-book sales with its first Kindle e-readers in 2007, setting the price for most titles at $10 per book and taking a profit loss to sell more Kindles.
Amazon’s low price, when compared to hardcover and paperback prices ranging between $15 and $30, frightened publishers, and many publicly commented that Amazon was devaluing literature.
“If it’s allowed to take hold in the consumer’s mind that a book is worth ten bucks,” said David Young, chairman and CEO of Hachette Book Group, to The New Yorker in 2009, “to my mind it’s game over for this business.”
The print publishing industry, deeply entrenched in traditional methods of distribution, showed strong reluctance to change. But from 2002 through 2008, annual sales for printed books grew just 1.6 per cent, and profit margins were shrinking on traditional book sales.
Meanwhile, e-book sales were soaring, increasing by 170 percent in 2009 alone thanks in large part to the Kindle, leaving publishers searching for a way to make digital books profitable.
Sensing a Shift, Publishers Strike Back
Frustrated publishers saw a chance to take back control of pricing when Apple, gearing up for the first iPad tablet release, approached them later that year to discuss content agreements for the new device.
To compete with Amazon, Apple offered publishers a deal, dubbed the “agency pricing model.” The new model included a higher $15 price for consumers in the iBooks store, and a 30 percent cut paid to Apple on all e-books. Publishers would actually make less money per title, but the overall value of digital books would remain relatively close to print books, and the move took pricing power away from Amazon.
Publishers jumped at the chance to regain control of digital sales with the new pricing system, and with the iPad set for launch, major publishers like Macmillan and Penguin threatened to pull their digital titles from Amazon if the retailer didn’t switch to the new model.
Amazon, unhappy about the new proposal, said on its website it felt forced “to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”
Since then, $15 has become the new industry benchmark, but publishers still complain that’s barely enough to cover digital distribution costs, authors report making less money, and consumers feel they’re paying more.
Pricing is especially confusing to readers, since they assume the cost of selling a digital download is lower than a print version, yet book publishers often price the digital versions only a few dollars below the hard-cover price.
But e-reader sales are soaring, and while consumers keep complaining about the price of e-books, they continue making purchases. Does that give publishers and retailers the right to keep raising prices?
It’s true some costs like paper, printing, binding and distribution are lower on a digital title, but their allocated overhead only amounts to about $4 per book. Publishers must still pay author royalties — typically around 15 percent of the sale price, marketing costs, and the salaries of their editors and a sales staff, marking only a slight difference in expenditure.
Still, Apple and five U.S. publishers now face federal investigations and a class action lawsuit over alleged price-fixing as a result of the agency model forced upon Amazon, in part due to statements Apple co-founder and CEO Steve Jobs made to his biographer, Walter Isaacson.
“We told the publishers ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’ But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,'” Jobs said.
The agency pricing model changed the digital publishing game for good, perhaps to consumers’ detriment. Amazon wasn’t ready to wave the white flag yet, and set its sights on regaining some control over the e-book marketplace.
As the Battle Heats Up, Amazon Changes Course
Amazon had no choice but to convert to the agency pricing model by Apple and publishers in 2009, forcing them to agree to higher e-book prices up to $15. Publishers were happy to see higher prices and more revenue, but Amazon chafed under the agency agreement.
However, the e-retailer has been pushing back. Last week, the company dumped nearly 5,000 independent digital titles from its library because their publisher, IPG, wouldn’t negotiate for higher pricing terms.
Amazon once promoted itself as the “good guy,” advocating for fair prices for consumers, selling books, and even the Kindle Fire tablet, at a profit loss to gain customers, a move rivals say was anti-competitive in its own right.
Now that Kindle Fire sales topped the 5 million mark, Amazon regained some lost clout, and could feel entitled to push for bigger profit margins from publishers.
Attempts to reassert itself in the pricing debate arrive as Amazon enters the digital publishing world in its own right. The company seems destined to outgrow its status as a middleman, opening publishing offices on both coasts, signing exclusive deals with best-selling authors like Timothy Ferriss and e-book publisher RosettaBooks, and acquiring 450 new children’s titles, evidence the retailer could be headed in a new direction.
Further, Amazon’s Kindle Direct Publishing Program allows authors to self-publish their work and sell direct to customers via the retailer’s web site, removing the need for a publisher altogether and giving Amazon a cut of sales instead.
Initiatives like these increasingly remove the need for a third-party: in this case, a traditional publishing house, underscoring the growing rivalry between Amazon and the print publishing industry.
But Who Is Losing Out in the End?
Writers are feeling the negative effects of digital publishing, insulted by the public’s increasing resistance to e-book prices. Stuart Neville, bestselling author of “The Twelve,” told the Irish Times “I’m amazed that people are that cheap. Do they think a year of my life is worth less than $9.99? Do they really believe that 10 to 12 hours of entertainment isn’t worth the equivalent cost of two or three coffees, or less than two beers?”
Authors may feel the overall value of their work is decreasing with digital publishing, but for the most part, author royalties remain the same, so at least they’ll still be able to afford a cup of tea to catch their tears, at least for now. Digital distribution channels could also increase circulation, reaching millions of potential new readers on the Web and through mobile devices.
But with profits on shaky ground, publishers could become even more selective about which authors they publish and promote, placing their bets on established bestselling writers and not new talent. The result will likely mean decreased diversity in titles that hit the marketplace, and fewer opportunities for new writers to get published.
The digital publishing revolution also breeds concern over piracy, which plagues the music and movie industries as well. When consumers don’t agree with set prices on media, they sometimes resort to unscrupulous means of obtaining it.
Apple helped reduce piracy in the music industry by offering easy access to millions of songs for low prices via iTunes, aggravating record companies and forcing them to go digital and cut prices, or face high rates of consumer piracy. But the company seems either unwilling or unable to go the same route with digital books, and if readers feel $15 is too much for an e-book, they may seek other options.
Where Will Publishers Meet Authors and Consumers?
On the flip side, people will not buy books they don’t wish to read just because they are cheap. Digital publishers and retailers would do well to remember those vast, towering stacks of discounted books that for two decades greeted consumers upon entering big-chain bookstores with fluorescent “3 for the price of 2” signs.
Profit margins on those titles were slim to none, and much of that stock returned to the publisher unsold, meaning printing costs spent were never returned. But periodic sales on certain titles, once common in brick-and-mortar retail, could go a long way toward satisfying customers who just want to feel they’re paying a fair price.
Publishers, authors and readers are all struggling to negotiate the changing technology landscape, and with more than 20 million American e-book owners, e-books are here to stay. Everyone wants their fair share, but sooner or later, one side or the other might have to relent.
Perhaps what’s required is a total overhaul in the public mind: to separate print books from e-books in the minds of consumers. Eoin Purcell, commissioning editor with European publisher New Island, advises “it is better to think of e-books as a completely different kind of product from print books. When you think of them this way, you begin to see that e-books will develop their own price points, which are largely unrelated to print prices.”
