Have you noticed how sometimes, when you go to buy a book on Amazon, the prices seem a little off? Maybe the Kindle version costs more than the paperback, or maybe more than the hardback as well.
At the time of writing, that’s the case with The Mirror Thief by Martin Seay on Amazon’s US Store and The Girl on the Train by Paula Hawkins on Amazon’s UK Store, to cite just two examples. It’s easy to find others if you look through the bestseller lists.
So how does an ebook end up being more expensive than a real book? Surely a few hundred kilobytes of text should cost a lot less than an inch-thick stack of paper that you can hold, sniff, and even throw at the cat?
We decided to investigate this phenomenon. And we discovered there’s a lot more to the pricing of books than you’d think.
Physical Books Don’t Cost That Much
It seems logical that physical books should cost a lot more to produce than ebooks. Publishers have to actually print something onto real paper, package it, and deliver it to a warehouse. With an ebook, publishers just upload a text file to a server and the job is done.
I don't get how people can prefer kindle books to real books. I need to feel the book in my hand!
— teaching beauty. (@hopebreedsmsery) September 24, 2016
For publishers, though, the physical production costs of releasing a book are only a tiny part of the whole cost. Let’s take an imaginary book, Why I’m Awesome by Harry Guinness (it got a rave review in the New York Times). The publisher sets the list price for the hardback at a fairly standard $25. Let’s look at how that breaks down.
First, a retailer pays the publisher around half the recommended retail price for the book. In this example, Barnes & Noble (or one of Amazon’s physical bookstores) pays $12.50. The other $12.50 goes towards costs, profit, future discounts, and so on.
I, as the author, get a royalty for each copy sold. With a typical deal, that’s going to be about 15% of the list price, or $3.75 on a $25 book.
The publisher isn’t going to handle distribution out to thousands of tiny bookstores either. They’re going to farm that job out to a wholesaler — a wholesaler who needs a cut, too. Let’s give them a fairly typical 10% of the list price, so around $2.50.
Printing Costs Aren’t a Big Factor
So where does that leave our publisher? They haven’t even started making the book and their cut is already down to $6.25. From that, they’ve got to pay for marketing (my book tour isn’t cheap), proofreading (I spell color “colour”), editing (you should see my first drafts), and so on. They also have to turn some kind of profit.
When everything is said and done, the publisher’s production cost for a hardback book is about $2.50, or 10% of the list price. For a paperback, the cost is between $0.75 and $1. The other expenses, which ebooks share, eat up most of the rest of the money. The specifics can change a little depending on what format the book is and what sort of deal the author has, but, for the most part, these numbers fit the above pattern pretty well.
This all means that the cost of producing a physical book really isn’t a major factor in the price — and that’s without touching on digital-specific production costs and the opportunity cost of having hundreds of thousands of dollars tied up in inventory.
The Agency Model
Another factor to consider is that ebooks are priced differently than real books.
Physical books are sold to retailers at around half the list price. They can then sell them for whatever they like. The Mirror Thief‘s publisher recommends selling the hardcover for $27.95 but it’s available on Amazon for $17.91. That $10 discount is coming straight out of Amazon’s profit margin. Amazon is gambling that the extra copies it will sell will more than make up for the lost profit margin.
However, ebooks are sold under the agency model. The publisher sets the price and gets 70% of each sale, and the retailer gets the remaining 30%. Amazon actually has no control over how much each Kindle copy is sold for.
This is the reason ebooks sometimes cost more than real books. The publisher has listed the hardcover of The Mirror Thief at $27.95 and the ebook at $20, which is a reasonable 30% markdown. Amazon, instead of selling the hardcover for anything near the list price, has chosen to sell it at a serious discount — so much of a discount that it now costs less than the originally-cheaper ebook.
People Pay for Value and Convenience
When you buy a book, you’re not buying the physical pages. You’re really just buying the content. If that wasn’t the case, all books would be interchangeable. But they’re not. Try giving someone The Bible instead of Harry Potter for Christmas if you don’t believe me.
With ebooks, customers have already demonstrated a willingness to pay for reading material. Kindles start at $69.99, and the Kindle Oasis costs $289.99 (£269.99), which would pay for a lot of second-hand paperbacks.
Publishers know that ebook users are some of the most voracious readers around. They will pay for the books they want to read, whatever the cost. With the Kindle, in particular, they also don’t have any decent alternative way to get ebooks. You can sideload ebooks from other platforms but it’s an awkward workaround that most users won’t ever even attempt. In other words, ebook buyers are a captive audience who have shown they’re willing to pay top dollar.
Some Countries Tax Digital Products
Finally, some countries, such as the UK, tax digital products differently to books.
Physical books, newspapers, and magazines are all exempt from VAT in the UK. Digital products, however, aren’t. This means that retailers are supposed to pay 20% VAT on any ebooks they sell — a cost they pass along to the customer — and which they don’t have to pay on hardbacks or paperbacks.
Given that the production costs of physical books is about 10% of their list price, this extra 20% tax is more than enough to wipe out any savings. Amazon and other major retailers currently do their best to get around these extra taxes but governments are closing the tax loopholes. So in the future, extra charges like these will make a big difference to prices.
Does Price Matter to You?
To me, an extra dollar or two doesn’t really matter when I’m buying a book. I’m happy to pay it for the convenience of having it arrive instantly — and also not having to get dressed and go out in public. I also don’t mind supporting the authors I love. But you may disagree.
Would you ever buy an ebook that costs more than the hardback? Do you accept that the pricing of physical media and digital media is just different? Please let us know your thoughts in the comments below!
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