Nice piece by Jeffrey Trachtenberg, the Wall Street Journal’s book-beat reporter, in this morning’s paper. (It’s behind a paywall, but see if you can’t snag a print copy.) He points out what ten minutes with a calculator revealed: as best we can tell, publishers’ margins are greater on e-books than printed editions. In other words, the e-tail is wagging the p-dog.
As best we can tell, because books aren’t identical, like boxes of Tide. Each one is different in so many ways: trim size, page count, paper stock, press run, etc. But “a back-of-the-envelope calculation,” as Mr. Trachtenberg puts it, shows that on a generalized Everybook, the publisher retains more money on the e-edition than on the print version. He also notes that electronic books don’t require inventory or shipping expense, or reserves for returns. Yet prices of new releases in digital format have been rising since the start of the year, and by now he’s seeing negative reviews of e-books on Amazon that have nothing to do with the content. Just the price.
There was a time when Amazon could set a $9.99 price for new e-releases, because the company was trying to establish its Kindle as the e-book standard. To do that, however, Amazon had to be prepared to lose money on every sale. Retailers generally pay half of the cover price using the “wholesale model,” so on a $30 book Amazon would remit $15 to the publisher. By selling for $9.99, it’s losing $5.01 on each copy sold. Retailers call an item priced below cost a “loss leader”: its purpose is to increase traffic in general. (Loss-leading can certainly go too far: a couple of years ago there was an absurd pre-Christmas price war in physical bookselling that briefly reduced Stephen King’s $35 doorstop UNDER THE DOME to $9.00. Remember the old joke: “How do we do it? Volume!”)
You might think this would be just fine with the publishers; who cares if Amazon is selling for less than it’s getting? But having watched Steve Jobs undercut record labels and set $.99 as the de facto standard for a single downloaded song (he’s raised that price since then, but the point is that the “album-model” labels were accustomed to selling 10 songs at a time, whether you wanted them all or not), publishers were worried that the price of an e-read was being devalued just as it was cutting into hardcover sales, and their previously ineluctable power to begin the calculations with a suggested retail price was being threatened. They actually ran into Jobs’s embrace when the iPad appeared and Apple offered to sell e-books using an “agency model,” under which the publisher sets the price and the retailer, acting as sales agent with no discounting ability, coughs up 70%. The Apple bookstore itself hasn’t made much noise. But because all the big publishers have now adopted its agency model, Apple has, for all practical purposes, ended the age of the $9.99 e-bestseller price point. Amazon still discounts physical books – they continue to be sold via the wholesale model – thus driving the retail price downward. But it has no control over the price of the corresponding e-book, and as that price point rises to compensate for fewer physical books being shipped (it’s strictly Return To Sender at Borders these days, dude), the disconnect is becoming increasingly evident. For example, Amazon will sell you a copy of Dick Cheney’s new $35 tome for $19.20, but the e-version will cost you $16.99.* Does that make sense to anyone besides the publisher? Mr. Trachtenberg reports that it is beginning not to.
Some caveats. It takes dough to bring out a major release. Vice President Cheney did not write his book for nothing (sit down there, you in the back!). It also had to be edited, set in type, proofread, “sold in” to whatever booksellers remain, promoted so we’ll all know about it, and in the case of physical books, printed, bound, shlepped back and forth, and so on. Bringing out the first copy is a tremendous expense, and I don’t begrudge the publisher for clawing every possible dime out of an initial release. Also, some authors are using e-distribution to self-publish at very low price points, a couple bucks a shot, because they don’t have that tremendous overhead. A few talented, prolific writers are making some money that way, but in 99 out of 100 cases, they are self-published for another very good reason. You still need big publishers because they hire sharp-eyed editors, so you won’t have to read those other 99 books.
But Mr. Trachtenberg’s piece is only concerned with new releases, what the industry calls the “frontlist.” Our math will really start to look funny a little later, when the book has had its hardcover run and goes into paperback — increasingly, “trade” paperbacks at about half the retail price of the hardcover; “mass market” books, or the identically-sized ones on cheaper paper that spin around on racks, are continuing to lose ground as a publishing format. To get the paperback version, mind, again we have to print, bind, shlep, etc. Even if the hardcover was a flop and the publisher decides to “strip and re-bind,” using the innards of returned copies for paperback pages, it still ain’t free. But the printed paperback will be sold to the retailer and customer at a drastically lower price. However, guess what: in most cases the e-price won’t budge an inch. Thus, Amazon continues to sell C STREET by Jeff Sharlet in hardcover discounted to $17.63. Now there’s a paperback edition for $10.75. Yet the e-price remains $12.99 – more than the paperback reprint. I don’t mean to knock this particular book or publisher, because they’re far from alone. Shop around and you’ll see. Forget the hardcover: “agency-priced” electronic books cost more than their own paperback reprints.
In other words, there’s no digital equivalent of “waiting for the paperback” at the six largest publishers. They offer a cheaper print alternative, but still calculate their lower-overhead electronic editions based on full hardcover retail price, even a year or more later, when most of the production expense has already been amortized. As with movies and records, you pay full freight if you want to be one of the first, if you want to enjoy a new release while everybody’s talking about it. But those other forms of entertainment will give you a break if you wait a while, until their marketing spotlight has turned onto something else. And, as we’ve seen, the book business does that too – except for the e-book format.
Well, as Mr. Trachtenberg points out, the customer is starting to notice all this. And I’ll concede that the publishers are having to make this up as they go along. As one of them said while mulling the agency model, “we have no idea how to set prices.” They’re not Procter & Gamble, they’re publishers. But if they don’t come up with some kind of sensible e-backlist policy, as the e-price rises to greet the hardcover price, the fastest-growing segment of their business will begin to look too rich for our blood.
10/4/11: Today I bought C STREET for my Kindle, and one other recently backlisted nonfiction book from a different publisher, for $9.99 each. If you’re experimenting with dynamic pricing, mates, please accept my congrats — and, more importantly, my dough.
12/16/11: After waiting patiently for more than a year, I bought my e-copy of Keith Richards’s LIFE today for $9.99. That’s plenty fair in my book: you wanna save, you gotta wait. Props to the publisher. (Just for fun, click the link above and see if the Kindle price is still $9.99 when you read this. You’ll know something I don’t.)
*A-version will cost you nothing.