Over the past several months, some of the largest publishers in the world, such as Hachette, Harper Collins, and Simon & Schuster struck a distribution deal with Amazon so that they can set the eBook prices for their books to avoid the discounts Amazon sets on online products. In the past, publishers usually sold their books wholesale to Amazon, but Amazon sold these books at a discounted price, taking a hit from eBook sales revenue, to encourage consumers to buy kindles. Publishers are now trying to take control of eBook pricing on Amazon to avoid these discounts, but it seems that eBook price expectations from consumers are already set. Early reports suggest that this new pricing strategy from the Big Five may be at detriment since reported eBook revenue has gone down from the last reporting period.
Overall, the eBook landscape has an expected price range for eBooks, and this range makes consumers much more price conscious. The pricing from the Big Five biggest book publishers have an average sale price of $10.81 while the average price for all books on the kindle store is $4.95; a substantial price differential. Typically, the books that rank on Amazon’s best-seller list are books that are priced at, or below $9.99, and could be the reason these books are best-sellers.
The new deal these publishers set with Amazon is a strategic move to ensure that Amazon does not low-ball their books prices, but based on the reports, higher eBook prices may not be in the publishers’ best interest because of sales volume. It seems that the lackluster eBook sales for the five publishers is based on consumer price perception. To a consumer, physical copies can have higher sale prices than their eBook counterparts because the costs involved in producing traditionally printed books and eBooks are significantly different. For example, Jonathan Franzen’s novel “Purity”, in eBook form, has a sale price of $14.99 – only 11 cents less than its hardcover counterpart. The eBook discount will not sit well with consumers because there is already consumer expectations of significant discounts for digital copies.
The revenue loss experienced by the Big Five publishers’ is a numbers game. Since the publishers increased the prices of their books, sales volume goes down. Each consumer has a sale price in mind when they make purchases, and this threshold is directly correlated to price elasticity. Since books are luxury items, they are not elastic, which means consumers are more sensitive to price changes, and more expensive eBooks sell less than inexpensive eBooks causing the drop in sales volume. For instance, if a book is sold at $5 but has a sales volume of 1,000 copies ($5,000 of sales revenue), it will make more money than a book sold at $10 that only sells 300 copies ($3,000 of sales revenue).
The nature of the distribution deal made by Amazon and the Big Five have not been disclosed to the public, but for now, it looks like publishers may need to lower the sale price for their books to match the pricing of other eBooks on the kindle store. Publisher eBook sales have declined since 2013, conversely self-published books and independent publishers has increase revenue and sales revenue; once again, could be attributed to price.