Why are Ebook Sales Falling?

September 8, 2015 by Thad McIlroy

Ebook sales are falling, the Wall Street Journal reports, this after languishing sales for the past several years. We’ve seen statistical examinations of a drop in ebook sales, but this is the first article to focus in-depth on a possible cause: rising ebook prices from the big 5 New York publishers.

Friction in Pricing

Anyone who shops for books on Amazon (where print books are usually priced more cheaply than its competitors) sees lots of examples of ebooks costing nearly as much as the discounted print edition (whether the paperback or the hardcover). Sometimes the ebook is, astonishingly, more expensive than the print equivalent.

The Wall Street Journal article quotes well-known industry surveyor Peter Hildick-Smith: “Since book buyers expect the price of a Kindle e-book to be well under $9, once you get to over $10 consumers start to say, ‘Let me think about that’.” Indeed.

It’s easy to pinpoint ebooks’ advantages over print books. Convenience, speed in receiving a book, adjustable font size, and, of course, cheaper. The comprehensive article about ebooks on Wikipedia points to environmental benefits, saving physical space, privacy when reading books like Fifty Shades of Grey, availability of free books, quick access to a dictionary, and the “lower cost than paper books.” Michael Kozlowski at Good E-Reader last year wrote a comprehensive listing called “eBooks vs Print – The Reasons Why Digital is Better” and notes that “many readers cite the price of ebooks as one of the primarily aspects of why they choose to read digitally.”

There are many different perspectives available on ebook pricing. Kobo issued a report called Power Pricing: Kobo Pricing Whitepaper 2014 (PDF) that, based on its own sales data, offers a conclusion providing a balanced view on pricing. “We learned there are customers for all price points, and there is a large difference between where publishers are pricing their books and where populations of customers are buying them.”

ConsumeristPricingPollThere’s a widely-read blog called Consumerist, operated by Consumer Reports. In response to the Wall Street Journal article it asked the question, “Would you pay more than $10 for an ebook?” Their readers are presumably a cost-conscious bunch but the result is unequivocal: No!

The Wall Street Journal article has drawn over 100 comments, many of them along the lines of “as ebook prices have crept up, I have significantly tamed my e-book purchases.” Others go so far as to say that even when wanting to purchase a specific title they’ll buy a different book at a lower price if the ebook is priced above $10. This indicates that authors are facing at least some lost sales when their publishers sets a high price on their books. Whether the greater revenue offsets the lost sales is near impossible to measure.

Industry observers think that high pricing doesn’t hinder sales of bestsellers. The Wall Street Journal article quotes “one high-level publishing executive” claiming “this is a title-driven business. If you have a good book, price isn’t an issue.” Similarly, a follow-up post on the Marketplace blog quotes 30-year industry veteran Ted Hill, noting that he is not yet alarmed by the drop in e-book sales. “Publishers are looking to keep up the value of their new releases by applying a tiered pricing model: full price when books are first released and discounts later,” Hill said.

Kobo backs up these claims with data. In its pricing report it takes a look at the top 100 bestselling titles for 2013, and finds that 62% of the titles had an retail price above $9.99 and 28% of the top 100 had an overall price above $12.99. “That’s a lot higher than the rule of thumb suggests is viable,” the report notes.

For my part I favor something akin to a conspiracy theory. In a comment to Mike Shatzkin’s post “The publishing world is changing, but there is one big dog that has not yet barked” I wrote:

Your commenter who found a $13.99 ebook competing with a $12.43 hardcover is part of a growing cadre who cannot help but think that publishers are not (in far too many cases) particularly interested in selling them an ebook edition. The Kindle edition of Daniel Silva’s The English Spy is more expensive than both the hardcover and the paperback. And on and on.

I’m not a subscriber to the idea that publishers are dumb. I do think that they were very emotional around ebooks when the Kindle started to gain traction. But now ebooks are just a business issue that lines up against other important business issues: author advances, manufacturing & distribution costs, and so on.

If this is correct that we have to assume that publishers are making a considered, deliberate, decision in their ebook pricing. [The Wall Street Journal article says that “To figure out how to set prices, a team of data specialists at Macmillan’s Manhattan offices in the Flatiron building sifts through a database of 74 million transactions looking for trends.”] There are only a small number of reasons why product prices might be higher than a rational market would dictate:

1. The supply is insufficient for the demand: this is not a possible scenario with a digital product.

2. Legal considerations/government requirements: the agency agreement does not address price levels, only the enforceability of retail price choices.

3. Price elasticity: publishers are finding that their overall ebook revenue is higher at current price points that it had been at lower price points: this is clearly a possibility, although common sense seems to suggest ‘nay’.

4: “Decoy pricing,” where one price is set artificially high, in order to boost sales of a second product (for any of multiple business reasons).

I believe it is #4. Price ebooks high in order to boost sales of print books.

Why do this? Because the overall success of any new title is significantly influenced by its presence in retail outlets. Depending on how you define “book retail outlets,” and how popular the title, there are some 5,000 locations in the U.S. that will prominently display proven and potential bestsellers. Within the current publishing business model this exposure is an essential part of the sales ecosystem.

If ebooks had continued to capture marketshare at the rate they were doing until a few years ago the book retail structure would now be in tatters. And established (mid- to large-size) U.S. publishers do not have a business model for dominating online sales in the same way that they can dominate total product sales with the existing retail component.

(Mike’s reply is here.)

I’ll give the last word to Jeffrey Trachtenberg, who wrote the Wall Street Journal piece.

As publishers game out e-book pricing, the stakes are high for authors and agents. “I want my clients’ books to be sold for as high a value as possible, but the important word is sold,” said Richard Pine, an agent at Inkwell Management.

Notes:

From Barry Eisler’s blog post on the same WSJ article: “I’ve been saying for years: the prime imperative of the Big Five is to preserve the position of paper and retard the growth of digital. They’re willing to lose money to accomplish this. They even just described it as good news.”

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Comments

  • Michael W. Perry

    Sep 9th, 2015 : 5:02 AM

    Like you, I’d go with #4, “one price is set artificially high, in order to boost sales of a second product,” with the most prominent business reason being the protection of brick-and-mortar bookstores.

    Setting ebook prices high not only reduces the sale of ebooks, it disproportionately hurts Amazon, which dominates that market. It helps regular bookstores, where the convenience of picking up a hot-selling new book may outweigh the slightly higher cost in comparison to Amazon.

    The major publishers want to help bookstores to keep alive competition with Amazon. They may even be willing to forgo some profit to do so.

    They could take another step that would also be effective. Release their most popular new books in stages:

    1. Hardback, taking care that regular bookstores have copies on the release date.

    2. Ebooks through every outlet but Amazon (iBookstore, Kobo, B&N etc.) There’s even an excuse for that. Virtually everyone else is epub. Only Amazon is proprietary.

    3. Ebooks through Amazon perhaps a month after the other ebook outlets. Buyers will learn that if you want to get that ebook quick, don’t read on a Kindle. When Amazon stews, tell them “proprietary format.”

    4. Paperbacks if sales justify them.

    An even better move would be for publishers to offer ‘early bird’ discounts through non-Amazon retailers in stage 2. Then concurrent with the Amazon release, raise the price (i.e. $9.99 to $12.99) for stage 3. That’d negate Amazon’s ‘most favored’ clause. Buyers would learn that ebooks are available faster and cheaper from non-Amazon sources.

  • Thad McIlroy

    Sep 9th, 2015 : 11:14 PM

    @Michael W. Perry

    Hi Michael,

    I do see what you mean about your various strategies to reign in Amazon’s influence. I’m not certain that they’d be effective, nor am I sure that they’d really achieve the desired goal. Trying to delay release of ebooks through Amazon seems particularly questionnable: if it’s even legal to do so would it not do more to frustrate customers (most of whom quite cheerfully buy ebooks from Amazon)?

    Nonethless good food for thought. Thanks for writing.

  • C.E. Kilgore

    Sep 14th, 2015 : 4:11 AM

    I think it’s number 4, and in a way they’ve admitted to this. Amazon discounts hard/paperback copies of books to put them in line with the high eBook prices being attempted by the big-5, and shoppers are deciding to pay 12$ for the physical book instead of the digital copy, along with free Prime shipping. It’s a bit of a no-brainer.

    But, I wouldn’t say that eBook sales are down overall, just for those big publishers who don’t understand how digital prices should differ significantly from physical copies. I am a successful midlister with eBook prices ranging from 99cents to 5$, and my eBook sales are way up – with my 5$ book currently being one of my best sellers.

    As a writer, the big 5 pricing at 12-14$ is good for me, because more and more readers are deciding to give the less expensive small press and indie publishers a try. As a reader, I will never pay more than 8$ for a digital book. I don’t care who wrote it or what it’s about. I would rather spend a few extra dollars and get the physical, but before I do that, I’d probably check the book out from my library. I’d also rather buy 4 indie books at the cheaper price for the same cost.

    I think until the big-5 wake up and realize that they are losing sales because they don’t understand their readers, their ebook sales will continue to decline while my ebook sales, and those of small press, will continue to grow. Which, is fine by me.

  • Thad McIlroy

    Sep 14th, 2015 : 11:34 AM

    @ C.E. Kilgore. Yes, I feel that the Barry Eisler blog post I quote aboveBarry Eisler on ebook pricing confirms your view and in the comments includes many similar comments from other self-published writers. Thanks for your comment.

  • Elaine Brown

    Sep 14th, 2015 : 8:50 AM

    Most people I know with an ereader have a huge to be read list. I could never buy another book for the rest of my life and not run out of reading material. Add that to independently published books at reasonable prices and the big publishers have lost most of my custom lately. They’re foolish if they think they are the only game in town and can charge what they like.

  • Thad McIlroy

    Sep 14th, 2015 : 11:36 AM

    @Elaine Brown. AND, we can add the vast quantities of free books available, whether from promotional efforts on the ebook retailers or from the vast supply of public domain books, many of which are classics.

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  • Jenn Nixon

    Sep 24th, 2015 : 10:56 AM

    I’ve sold more ebooks in the last year than print by about 10X. My ebooks are nicely priced at 2.99.

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