Ebook Prices: Propping Up a Dying System

May 24, 2011 at 8:53 am | Posted in Books, eBooks, Miscellaneous | 4 Comments

With the growing sales of eReaders and the demand of eBooks, consumers are being exposed to a startling disparity between the prices of physical books versus the price of digital copies. Many people have asked themselves why? The answer is a combination of several factors all falling back on one solitary issue. The first factor is eBook retailers Apple and Amazon. The second factor is the major publishing houses. The final factor is the downfall of the music industry.

When Apple entered the eReader market it enabled a vast portion of society to follow suit. Apple’s iBookstore allowed iPhone, iPad, and iPod touch users to read eBooks. Due to the popularity of these devices, Apple was able to secure a large chunk of the eBook market. Then Apple came to terms with the big publishing companies and adopted the agency pricing system. The agency pricing system is very simple: publishers retain the right to set the prices of their products (eBooks) while retailers receive a percentage of the sale price (30%). On its own this may not seem like a big deal but when you bring Amazon into the picture things become clearer.

Amazon is one of the major players in the eBook retail market. The company claims to have 70-80% of the eBook market, whereas Apple and Barnes & Noble both claim 20% each. Even though the numbers don’t match up, the case is still clear: Amazon rules the eBook kingdom. Though they control the largest share, Amazon still has to keep pace with its competitors. When Apple adopted the agency pricing system it put a significant amount of pressure on Amazon to follow suit. Up until that point Amazon maintained a $9.99 pricing scheme for eBooks whether they were new releases or not; and many titles had further discounts. But that all changed when the publishers began putting pressure on Amazon.

Several of the ‘Big Six’ publishing houses stated that eBook prices were too low and that it was devaluing their books:

“We don’t like the Amazon model of selling everything at $9.99. They don’t pay us that. They pay us the full wholesale price of $14 or whatever we charge. We think it really devalues books and it hurts all the retailers of the hard cover books. We are not against [electronic] books. On the contrary we like them very much indeed. It is low cost to us and so on. But we want some room to maneuver in it…Apple in its agreement with us, which has not been disclosed in detail, does allow for a variety of slightly higher prices.

There will be prices very much less than the printed copies of books but still will not be fixed in a way that Amazon has been doing it. It appears that Amazon is now ready to sit down with us again and renegotiate pricing.”

-News Corp CEO Rupert Murdoch, owner of HarperCollins

Furthermore Amazon and Big Six publisher Macmillan went into a very public argument over eBook prices. One weekend Amazon went so far as to drop all of Macmillan’s books from their online store. In return Macmillan adopted a new advertising slogan “Available at booksellers everywhere except Amazon.” The fallout led to Amazon caving in to Macmillan and allowing the publisher to set higher prices for their eBooks. Publishers like Macmillan, HarperCollins, and Hatchette all wanted eBook prices to be around $15 or more. Due to this pressure Amazon abandoned their wholesale pricing model (retailer buys the books from the publisher and can then do whatever they want with them) in favor of the agency pricing model.

So why do the big publishing companies want higher eBook prices? The big publishing companies admit that higher eBook prices do not equate to higher profits. The simple truth of the matter is that higher eBook prices drive down demand which in turn drives down sales. However, publishers aren’t concerned with eBook sales so much as the sustainably of their established print empires.

“We found that in the US, electronic retailers began to apply large discounts on ebooks, driving the cost down. Steadily the spread between the price of a printed book and an ebook became so substantial that we felt it was just unacceptable…It’s important for the publisher to control the retail price…We don’t want the items sold below cost, as the perceived value of books becomes damaged. Once this happens, can we expect online retailers to absorb the cost of financing the editing and publishing of books?”

-Ronald Blunden, head of Hatchette’s communications

“I don’t think they can convince consumers that ebooks themselves are worth the same as print books, therefore they effectively have to strong-arm them…If you allow the market to decide, ebooks will become too cheap and you won’t be able to pay authors, editors, or all the infrastructure that sustains the industry.”

-Phillip Jones, deputy editor of The Bookseller

Thus the high prices are not because the publishers are trying to make more money off of eBooks but because they need the price of eBooks to be high in order to continue to sell print books. It’s understandable that consumers would chose to purchase a cheap eBook over the expensive price tag attached to a hardcover book. With the increasing sales of eReaders, more and more people now have the option of purchasing eBooks over physical books. If such a trend were to reach it’s inevitable end point, then the existing system would crash. A market dominated by eBooks would make hardcover books rarities or print on demand items, and the vast majority of bookstores would go out of business. The reaction of the publishing houses is based on the fear of what happened in the music industry.

When digital music swept over the land, the music industry was dealt a massive blow. Sales of CD’s and other forms of physical music albums plummeted as consumers opted to buy $1 songs over $15 albums. One side claimed that the drop in sales was due to digital piracy while the other claimed it was due to poor record contracts with substandard products. Regardless, book publishers see eBooks as the same threat that the music industry faced with MP3’s. In such a scenario the sales of books would drop as the demand for cheaper digital books would soar. The quick fix: raise eBook prices to ensure demand is kept low for eBooks and that demand is maintained for physical books.

In the end it all boils down to publishers trying to keep a dying system alive with a tenuous balancing act. High eBook prices keep bookstores in business and allow them to continue printing and selling physical books at a reasonable price. By pushing the agency pricing model on eBook retailers they ensure that a major powerhouse like Amazon cannot dictate the price of the market. The agency model allows publishers to maintain control over the system thus allowing the balancing act to continue.

However, from the consumer respective, readers have to ask themselves which outcome actually satisfies them. On one hand the balance could be allowed to swing in full favor of digital books. Consumers would have a plethora of cheap eBooks to chose from saving money not only on the books they buy, but also in time and travel. Yet in turn there would be far fewer physical books to chose from and the prices for those that would be available would be much higher. Letting the balance swing in favor of physical books means a continuation of the reality we are in now. In order to keep print books available, eBook prices have to be high. Ultimately the cost of digital books comes down to the simple joy of bookstores and paper pages.

For us Star Wars fans, and the recent news that Random House will be releasing the Star Wars catalog in eBook format, we must face the fact that the prices of these eBooks will not be lower than their print counterparts. Random House is one of the Big Six publishing houses along with Hatchette, HarperCollins, Macmillan, Penguin, and Simon & Schuster. In March of this year Random House was the last of the Big Six to adopt the agency pricing model (a necessity in order for them to do business with Apple’s iBookstore). The effect is that all eBooks will continue to reflect the windowing system where new release hardcovers will enjoy about a year of shelf time before the cheaper paperbacks become available. For eBooks the cost is reflected with hardcover pricing ($13.99) until the mass market paperback reprints are released, after which the eBook version will drop to paperback price ($7.99).

For the immediate future, pricing is dictated by the publishers and their belief that they can save the existing print system from extinction rather than taking a risky leap of embracing change and the enormous demand for cheap digital books.

Written By: Skuldren
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4 Comments »

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  1. That was a very well reasoned explanation of how it works now Skuldren. I know it sure cleared a lot up for me. Well done.

  2. […] also delved into the future of publishing ( rather  passionately) as it relates to the Star Wars saga. In addition, Lucasarts’ […]

  3. […] also delved into a future of publishing ( rather  passionately) as it relates to a Star Wars saga. In addition, Lucasarts’ president, […]

  4. […] also delved into the future of publishing (rather passionately) as it relates to the Star Wars saga. In addition, Lucasarts’ […]


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