When e-readers and e-books started to become more accessible about ten years ago, equal levels of excitement and panic could be felt within the publishing industry. Was this a good or a bad thing for publishing? Would publishers start to phase out paperbacks? How would e-books impact author royalties?

Some predicted that hardcopies would eventually become obsolete, a vision that horrified booklovers. But those predictions have fallen way short. In fact, over the past few years, the U.S. e-book market has decreased by over 24%, and print sales have gone up.

There are a few reasons as to why, but at least part of the decline in e-book lovin’ can be attributed to a debate that’s been ongoing for years among authors and readers: Why are e-books, which are much cheaper to create and distribute than paperbacks, so expensive? And more important, why are some e-books even more expensive than the paperback versions?

For example, on both Kindle and Nook, The Girl on the Train paperback costs around $9.60, while the e-book runs at $9.99. The Miss Peregrine’s Home for Peculiar Children paperback is set around $7.00, versus a $10.99 e-book price tag. East of Eden: $10.97 versus $13.99.

Amazon is probably the biggest propagator of e-book price directing out there. Amazon has no regard for publishers’ protocol; it prices books how it wants and sets its own discounts. And yet, the thought of not working with the behemoth e-commerce site is unthinkable to publishers and authors.

The original wholesale model for e-book pricing is one in which publishers set their retail price and Amazon (or other e-tailer) takes about half of that. Up until about 2010, the major Big 5 publishers had 48% of all e-books sales in the U.S. Amazon will often undercut itself for market dominance, selling e-books at a price below what it pays the publisher. Amazon has been known to discount popular hardcovers to $9.99, and facilitate $0.99 sale binges on audiobooks.

Amazon’s practices created panic among publishers, needless to say. Not only was Amazon creating a new notion of what books should cost; no one could even compete with prices. Because of this, Amazon gained nearly 90% of the e-books industry within a year or two.

Then Apple introduced the iPad, and along with it came the Agency price model, in which the publisher sets the price, but Apple takes 30%, and publishers get 70%. So publishers decided that this would be the new model across the board, and used several different strategies to fight against Amazon’s pricing point, from “windowing” new releases (basically delaying the release of books to their e-book form for a certain window of time), to selling e-books for the same price as their printed version through a wholesale model. By 2012, the pushback from Amazon and blatant tactics of the publishing industry was noticed by the Department of Justice—and the plot thickened.

In 2012, the Department of Justice alleged that by fixing the price for e-books, Apple and the other major publishers were in violation of the Sherman Antitrust Act. And in 2014, Apple had to pay $400m in compensation to people who bought e-books through its iBooks store, while the other five publishers paid out $166m in a 2013 settlement.

Ultimately, the great e-book pricing debate comes down to a conflict between two fundamentally different models that have equal pros and cons. As stated above, the traditional wholesale model had publishers setting the list price of books, and selling them to retailers at a substantial discount. The booksellers then turn around and sell the books to consumers at whatever prices they choose, and keep the profit or take the loss. In Amazon’s case, it sold popular books at a discount, accepting a loss to bring in customers. On the other hand, the newer agency model that dominates how e-books are sold doesn’t allow for discounting. Retailers become “agents” through which publishers sell books directly to consumers. The booksellers sell the books at the price set by the publisher, and receive a commission on sales.

Of course, after feeling a bit targeted, Amazon actively isn’t going down without a fight—and that’s where we are now.

The retailer flexed its pricing muscles once again, focusing on selling paperbacks and hardbacks. Oh—publishers won’t let us control e-book pricing anymore? Then we’ll price the print books way down, equal to or under the e-book pricing! The mentality is that it will cut into the publishers’ physical distribution model, as well as the e-book sales.

The result? Readers are seeing e-books and paperbacks at comparable pricing, and in many cases, the paperbacks cost less.

One important thing to remember, though: if you see that your book is selling for lower than its list price on Amazon, don’t fret. This doesn’t mean that you’re going to get paid less. Whether you’re traditionally published, with a hybrid press, or self-published, you will earn the royalty split you’re due no matter what. When Amazon discounts your book at its own experimentation, the retailer is undercutting its own profit.

At SparkPoint Studio, we want to make sure you’re well informed. So here is the breakdown of our She Writes Press and SparkPress imprints’ e-book sales.

Our pricing is set at $9.99. We keep a 20% fee from the Net Sales Price (for distribution to the trade partners, managing relationships and files, and handling all customer service and accounting). There are two ways in which e-book earnings are calculated, depending on where the e-books are sold.

 

E-BOOK Agency Model (e.g., Apple)
She Writes Press Traditional Publisher
List Price $9.99 $9.99
Retailer $3.00 $3.00
Ingram Fees/commissions $0.56 $0.76
Publisher $1.40 $4.74
Author $5.03 $1.49
E-BOOK Wholesale Model (e.g., Amazon)
She Writes Press Traditional Publisher
List Price $9.99 $9.99
Retailer $5.24 $3.00
Ingram Fees/commissions $0.36 $0.76
Publisher $0.95 $4.74
Author $3.44 $1.49

 

Royalties differ across the board, depending on how you publish. While She Writes Press and SparkPress authors get 80% royalties on e-books, other partnership publishers might range from to 80%-50%. In traditional publishing the author gets 25% of net royalties on e-sales. On the self-publishing side, it depends one your outlet. But Amazon, as the dominant example, has effectively created a system in which all authors using Kindle Direct Publishing (KDP) have to set their price point between $2.99 and $9.99, or else face the fallout of receiving a 30% versus 70% royalty.

E-book pricing is a world all its own, and we hope having a firm understanding of how this all works will help you to navigate your choices and your future royalty reports. Good luck!

One Comment

  1. Vivian December 29, 2016 at 10:57 pm - Reply

    Thank you for explaining the breakdown in pricing models. It might be helpful to show the price breakdown for an ebook versus a print book to help better our understanding of this pricing dilemma.

    Sadly, for those of us that are dedicated digital readers, many publishers have priced us out of the digital book marketplace. I no longer have adequate space for storing print books, so I’ve become a devoted digital book borrower via my local library system. I know authors and publishers may not get us much revenue as a result, but I simply can’t afford the vast majority of commercial and literary fiction ebooks in today’s marketplace.

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