Publishers still missing the point on e-book prices

When the major book publishing firms signed an agreement with Apple (s aapl) that allowed them to control the prices for their e-books — unlike the deal they had with Amazon (s amzn), which gave the online retailer the right to cut prices if it wanted to — they probably thought they had won a major battle. But as a Wall Street Journal story points out, they are still shooting themselves in the foot when it comes to e-book prices, by keeping them artificially high in an attempt to shore up their profit margins and protect their existing print business. In the long run, that pricing model could wind up doing far more damage than the model it replaced.

The Journal piece notes that e-book prices, particularly for some best-selling and popular titles, are in many cases actually higher than prices for the comparable print version. For example, author Ken Follett’s “Fall of Giants” costs $18.99 as an e-book and sells on Amazon as a paperback for $16.50. One New Yorker says he is buying fewer e-books because of the higher prices publishers are charging for them, telling the Journal:

It’s hard to justify the purchase of e-books that are priced at $10 to $15 when you can buy the real book on Amazon used for $2 or $3

Publishers are indulging in wishful thinking

And how do publishers justify doing this? Among other things, they claim that consumers are actually willing to pay more for the e-book version of a novel because of the convenience and other features that they get with an electronic edition — the ability to search, make highlights, and so on. A senior vice-president at Hachette Digital, a unit of one of the world’s largest publishing firms, tells the Journal that she believes “there has been a change in the understanding of the value of a digital book,” and that readers see the added value and are willing to pay extra for it.

This sounds like a giant case of wishful thinking, and there is mounting evidence to indicate it is just that. While it’s true that e-book sales continue to increase, that’s more likely due to the mainstream adoption of readers like the Kindle and the iPad than it is any acceptance of higher e-book prices. The WSJ piece also quotes publishing industry sources as saying they are seeing consumer resistance to e-book prices in the $10 to $15 range, and a company that tracks e-book piracy notes that the rate with which books are being scanned and uploaded to file-sharing sites is also increasing exponentially.

But another publishing industry insider has a warning that is even more important for traditional publishers than piracy: Lorraine Shanley says that high prices for mainstream e-books could easily convince more readers to try self-published novels from authors using Amazon’s Kindle publishing platform — since many of them are priced at $5 or cheaper. Self-publishing success stories such as Amanda Hocking and John Locke have shown that sales in some cases can jump by as much as 20 times when the price drops.

Does Amazon need another stick to beat publishers with?

That’s the real threat for publishers with their antiquated pricing models: Amazon is already eating into their market share on a number of fronts — by making the self-publishing of books as easy as possible (and offering self-publishers monetary incentives to sign deals with Amazon) and by signing up authors to its own digital imprints. Do publishers really want to give the company even more power by pushing consumers of their books away with artificially high prices? Do they need to give Amazon another stick to beat them with?

The irony in this approach, as the WSJ story points out, is that the “agency model” that the major publishers signed with Apple actually results in less money from many titles. In the past, Amazon would give publishers a fixed price for both the printed and the electronic version of a book, and then any discounting on the e-book version would come out of Amazon’s pocket. But under the agency model, publishers get 70 percent of the retail price, which for some titles means they wind up with less revenue.

On top of that, the Big Six publishing firms are currently embroiled in a federal antitrust investigation over the agency model, based on allegations that the deal with Apple represented collusion and illegal price-fixing and is therefore anti-competitive. Winning the ability to set prices for e-books instead of letting Amazon do so may have felt like a victory at the time, but it could turn out to be a hollow one.

Post and thumbnail photos courtesy of Flickr users Mike Licht and Marya