It’s Booksellers, Not Publishers, Who are Responsible for High Prices

Everyone needs to make money.  I get that.  But I get a bit frustrated when I see comments on eBooks or even printed books about prices being too high.  That DVD used for that movie you bought costs 39 cents, but did you complain when the price for the movie was $19.99?  How about the video game that also comes on a 39-cent DVD but retails for $69.99?

These things are expensive because they are expensive to make, right?  Are books not expensive to make?  How much is a writer’s time worth?  Should a writer not make enough money to earn a living?  Ironically, when a $200M movie bombs, no one blinks. But when a book bombs, the author is tarred for life with bad Bookscan numbers.  Publishers may never buy another book from that author.

Most books are priced to earn publishers a few dollars at most.  The price that bookstores pay publishers is based on the retail list price (RLP).  That discount is often higher than 50%, with 55% being quite common.  If the publisher pays royalties based on the RLP—say the industry-standard rates of 10% on the first 5,000 hardcovers sold, 12.5% on the next 5,000, and 15% thereafter—that means that fully 60-65% of the cover price is accounted for.  So the publisher of a $25 hardcover earns $8.75-$10.  From that, the publisher must cover the cost of the printing of the book, the design of the book, shipping the book, paying the editor, paying the copy editor, paying the proofreader, paying the publicist, and myriad other costs associated with publishing a book.

So, what does the publisher need to do to ensure it makes enough money per title to pay all of those costs and earn a modicum of profit?  It has to raise the cover price.  If booksellers such as Amazon or Barnes & Noble would accept a lower discount, then prices could come down.

Once upon a time, the discount to booksellers was somewhere between 42% and 48%, and bookstores would offer discounts on New York Times best-sellers, taking a smaller profit on those but hoping you’d pay full price for another book while you were in the store.  But in order to grow, Barnes & Noble begin discounting nearly every book by at least 10%, which drove a lot of smaller bookstores out of business.  Now you’ll pay the full price at B&N stores on most books, because it no longer has to offer discounts, as there is so much less competition among brick-and-mortar bookstores.

Then Amazon came along and changed the game on B&N, which is now struggling to stay in business at all.

But Amazon is not taking a smaller discount than any other bookseller.  Sure, the biggest publishers in the industry may have been able to move over to the so-called “Agency Model” and now pay Amazon a 30% commission and net 70%, less delivery charges (funny that Amazon charges publishers a “digital delivery fee” on something that costs nothing to push to a Kindle, but offers customers free shipping on the print edition).  Of that 70% of net, the publisher probably pays 25% to the author.  So a $14.99 eBook (of a $25 hardcover) nets the publisher $10.49 and nets the author $2.62.  That leaves the publisher with $7.87, which is less than the publisher makes on the $25 hardcover, despite it being the same book—the same content—but it has to be priced lower than the hardcover because Amazon trained customers to expect the cost of an eBook to be far less than the cost of a printed book, even when the only printed edition available is a $25 hardcover.

In an apples-to-apples comparison of the costs of the hardcover and the costs of the eBook, the price difference should be about $3.  That’s roughly the cost of paper, printing, and binding and the cost per book of shipping a hardcover (assuming you are shipping boxes of the hardcovers to stores).  And we have started to see eBook prices coming up, much to the anger and frustration of many readers, but rarely to a place where the eBook price is more than 80% of the hardcover’s price.

I believe all movies should be $8, but do I go on Amazon and give one-star reviews and complain in the comments that the movie is overpriced at $19.99?  No.  I just choose not to buy the movie.  Presumably if enough people don’t buy the movie, the price will come down.  That is the beauty of market forces.

But if publishers can’t make enough money selling books, then they can’t stay in business, which means all Amazon will have left to sell is self-published books for $2.99.  Is that the future you want for the publishing business?

So don’t complain about books being priced too high.  If you want book prices to be lower, complain to Amazon and B&N that they should lower the discounts they demand, so that publishers can make the same amount of money per title at a lower price point, which will allow those publishers to stay in business.

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