E-Book prices fuel outrage – and innovation

Narasu Rebbapragada
18 June, 2011
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An eBook that costs the same as a printed book doesn’t feel right. No trees died to make it. No heavy machinery ran to print it. No planes flew to ship it. You might need to buy one of those new $139 Barnes & Noble Nooks to be able to read it. So why should you have to spend as much as you would for a heavy hardcover book to own it?

Blame the latest phase of the digital content revolution, now more than ten years strong. As first happened with music, then movies, then print news, the book publishing industry is experiencing a shake-up of rules and roles. In particular, the changing relationship between the book publisher (the company that creates books) and the book retailer (the company that sells books) is causing a chain reaction of confusion, mistrust and price hikes. The good news is that this phenomenon is inspiring enterprising startups to rethink aging models of book pricing.

The bad news is that it’s pissing people off.

Need proof? Look up Emma Donoghue’s Room: A Novel on Amazon. You can get a new paperback copy for $8.99, while the downloadable Kindle edition costs more at $11.99. Scroll a bit down the product page and you’ll see that the average customer review out of 829 (at this writing) is a favourable 4.2 stars out of 5. People like the book.

On the Kindle Store page for the book, scroll some two-thirds of the way down to the “Tags Customers Associate with This Product” section and you’ll notice that nine out of the top ten tags for this book have nothing to do with its page-turning storytelling. The book, last time I looked, had 105 tags for “too expensive for Kindle,” 85 tags for “9 99 boycott”, 65 tags for “overpriced-kindle-version,” and so on. People don’t like the price.

The 9 99 boycott tag, in particular, was created by Kindle eBook users to express their outrage that the prices of some eBooks approach if not exceed the price of their hardcover versions. So far, 5892 Amazon users have tagged electronic Kindle books 36,704 times with the 9 99 boycott tag (here’s how to use the tag).

This reader revolt comes at a tipping point for the book industry. According to the Association of American Publishers, eBook sales reached US$164.1 million for the months of January and February 2011, a 169.4 percent increase when compared with the same period in 2010. For the same period, sales of combined categories of print books fell 24.8 percent, with US$441.7 million sold.

So while print book sales still exceed eBook sales in absolute dollars, we’re seeing their final glory days. The bankrupt Borders bookstore chain, closing 30 percent of its brick-and-mortar stores, has reported a US$24.3 million loss for March. Barnes & Noble executive Marc Parrish said at the GigaOm Big Data conference that the book business was shifting to digital faster than the music, movie and newspaper industries.

Amazon announced in January that Kindle books have overtaken paperback books as the most popular format on Amazon.com (not so much information on sales of The Kindle) and Forrester Research expects eBook consumers to spend nearly US$3 billion on eBooks in 2015.

Big book publishers are experiencing the shift to digital. “We’ve gone from a 90/10 physical and eBook split last year, to closer to 80/20 and expect that to increase again next year to 70/30,” says Maja Thomas, senior vice president of Hachette Digital at the Hachette Book Group, via email while attending this week’s Book Expo. “It is too early to tell how the different paper formats will be affected – although I would expect most mass market buyers to migrate to e [eBooks].”

Hachette is referred to as a big-six book publisher, along with HarperCollins, Macmillan, Penguin Group, Random House and Simon & Schuster. Its suspense imprint Mullholland will be producing many digital-only titles and it is making illustrated children’s books available on the Barnes & Noble Nook Colour.

Publishers strong-arm retailers
The move to digital has traditional book publishers scared, which has resulted in a power struggle with book retailers for the right to price books. The score right now is “advantage book publisher,” but the consequence is that eBook prices don’t reflect the normal laws of supply and demand or the current costs of producing a digital book.

“The pricing is a little wonky right now,” says James L. McQuivey, Ph.D., vice president and principal analyst at Forrester Research, about eBooks. It didn’t start that way. When eBooks were new, retailers set their prices the way they wanted, but lower than print books – generally at $9.99 for new book releases.

This price discount was beneficial for retailers. In April 2008, Amazon proudly announced that the The Last Lecture by Randy Pausch and Jeffrey Zaslow sold out in print but was easily available for the Kindle for $9.99, a significant discount from the $21.95 print list price. (Of course, most retailers sell print books lower than the list price as well.)

For those with an eBook reader like Amazon’s Kindle, eBooks were cheaper and easier to access than hardcover books. That made publishers nervous. Having watched 99-cent online music prices cannibalize CD sales in the music industry, publishers of print books fought to take control of book pricing, armed with the ‘agency model’, a pricing structure where the book publisher sets the price of the book and the retailer takes a commission off of book sales.

Hachette sells all its U.S. eBooks under the agency pricing model and according to Thomas, is “very satisfied” with the agency model, but Thomas adds, “We welcome the ability to experiment with pricing and offer readers a variety of choices.”

Retailers fought back. When Amazon reached a negotiating impasse with book publisher Macmillan over the agency model, Amazon temporarily stopped selling Macmillan titles. But a retailer needs to sell the books that people want and in January 2010, Amazon ceded to the agency model used by Macmillan and other publishers. The result was an increase in cost from $9.99 to $14.99 for many best sellers, a price that more closely reflects the price of the hardcover edition.

This is not just a story about Amazon; you can see this pricing structure across eBook sellers. Amazon is the front-runner. McQuivey estimates that in 2010 Amazon had 70 percent market share, Barnes & Noble had 14 percent and Sony had 13 percent, leaving only a small percentage for other players, including tech heavyweights Google and Apple.

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