At What Discount Should Publishers Sell EBooks to Resellers?

Discounts matter. Here is a little history to illustrate that point:

When the mall stores—B Dalton, Walden—arrived on the scene, followed closely in the 1970s by the big box stores—Barnes & Noble, Borders—the big publishers rolled right over to their demands for better discount and of course the independents had to follow.

For the most part these demands for better discount were justified. Better discount for higher volume is a fair and time-honored principle because higher volume usually leads to lower transactional costs. And the book business in those days was very much in need of more marketing push than the small booksellers, who had long dominated the market, could deliver.

But the result was a very wide discount differential, in retrospect too wide. The chains could command a discount off list price of 48-50%. The small stores had to accept 42-44%, on average about 4 or 5% less. The higher discount allowed the chains to mark down the prices of some titles for their customers. The small stores did not have the margin to afford such markdowns. Thousands of independent booksellers went straight out of business. Most of the independent booksellers went straight out of business. The mistake was not that the chains got too much discount; it was that the independents got too little.

How smart does this discount differential look now, as we survey the gaping hole left in the market by all those empty Borders superstores? Perhaps no amount of discount would have saved Borders. But are independent publishers and distributors willing to give the eBooks resellers such favorable discounts that they can afford to lower prices enough to put what is left of the bricks-and-mortar bookstores out of their misery? Are we willing to repeat this sad discount history with eBooks?

My last note in this space compared print prices with eBook prices to try to arrive at an estimate of what eBooks really should cost. A few people commented that my numbers were not exactly right. Nor could they have been because there is no such thing as a typical book. Now let’s have a look at the costs of running a bricks-and–mortar store versus a web based operation. Here again the actual numbers will be all over the map, and the best that can be done is a rough approximation of the comparative costs.

Barnes & Noble was able to build and operate over seven hundred huge, well appointed stores working on a 50% discount arrangement with its suppliers. And the independent booksellers still in the game run shops, much loved by their local communities, on less discount. These booksellers big and small somehow even manage to collect and pay sales taxes! Shouldn’t an eBook reseller be able to thrive on a much narrower margin?

After all, most of the much-celebrated if exaggerated cost savings for publishers enjoyed by eBooks over print books—no warehousing, receiving, picking, packing, or shipping costs, no title ever out-of-stock, no expensive physical stores to build and maintain—surely also accrue to web-based eBook resellers. Can a website be as expensive to run as a shop on Main Street? Can storing just one book file in the cloud cost as much as shelving thousands of print copies in a store?

The big six publishers have used their market power to insist on an Agency Model that gives the eBook resellers 30% of the action. The independent publishers, lacking that market power, have had to settle for a deal that gives most eBook resellers over 50% of the action.

(Yes, there are some complicated side issues having to do with the Agency Model and the Wholesale Model. But the big six publishers went to the mat to get the Agency deal. Which deal would you want? The arguments for the Wholesale deal are just obfuscations offered up by those who would benefit from it.)

If this discount differential persists, many independent publishers will be driven out of business, just as so many independent bookstores had to close their doors when they were denied equitable terms. And what is at stake here is not just money.

Curt Matthews

CEO, IPG/Chicago Review Press, Incorporated

Curt Matthews is the founder and CEO of Chicago Review Press, Incorporated, which is the parent company of Chicago Review Press and of Independent Publishers Group (IPG), the first independent press distributor and now the second largest. Curt has served on the Independent Book Publishers Association (IBPA) board and has also served as its president.

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5 thoughts on “At What Discount Should Publishers Sell EBooks to Resellers?

  1. My book Vienna Triangle was first put on Amazon’s best seller list and then dramatically pulled and literally vanished. I feel as though my legs have literally been cut off..poster girl for the death of independent book sellers and publishers.

  2. Pre-SPU
    When we first put our best-selling book onto the KDP program, Amazon unilaterally marked it down to $9.99 from $19.95, but at least they still paid the niggardly 35% “royalty” on our set price of $19.95. Sales were minimal, far less than their sales of the hardcopy edition at $24.95.
    Then Amazon raised the Kindle book price back to our $19.95. Their sales shot up to very nearly equal to the hardcopy edition.
    Then Amazon introduced the 70% “royalty” program for Kindle books priced (by the publisher) at $9.99. After crunching the numbers, we discovered that our net, IF we changed the price to $9.99, would be a few cents less than 35% of $19.95. So, with our experience of Amazon sales at $9.99 being a bust, we declined to lower our price. Sales of the Kindle book increased to MORE than their sales of the hardcopy book!
    Post-SPU
    It’s incomprehensible to me that Amazon takes such a chunk of OUR money, and now wants SPU/IPG to even “give” them more! Of course, once the book was being “shipped” to them by SPU, they lowered the retail back down to $9.99, but that was unilaterally their decision, without even looking at the pattern of higher sales at the higher price. No, they said (in effect), “We don’t have enough margin on the SPU distributed Kindlebooks,” and wanted SPU to increase their discount so they could make a profit at $9.99. Absolutely incomprehensible.

  3. John Darnell says:

    A comment from a customer, not an author…wake up! The market is changing. It is utterly incomprehensible to me that someone defends their right to charge huge amounts of money for hardly any effort (compared to brick-and-mortar establishments). The blog itself admits that the cost differential between digital and B&M is significant. As I said before, the market is changing and you had better figure out how to change, too, or, like Borders, you’ll be out of a job. For my part, I am doing my very best to support the $.99 and $1.99 opportunities for reading that I find at Amazon, and I will continue to do so. When I see a book sold as a hardback for $10.49 and the digital sold for $10.99, I know that someone besides Amazon is getting greedy (or reverse the numbers…to this jaundiced reader who has only so much disposable income to devote to reading, it makes little difference).

    Progress is happening. Deal with it.

    • I agree with Mr. Darnell that it would be nice to buy books for $.99 or $1.99, but only if they were good books. And at such low prices they will not be good books, cannot be good books. There is no free lunch! In the long run you don’t get more than what you pay for. If authors are not well enough compensated for their writing, they will not be able to write. If publishers are not paid enough for the essential services they provide, they will not be able to provide them. The idea that a good book can just be somebody’s Word file in eBook form does not meet the test of reality.

      But wait! someone is sure to say. If books are cheap enough, authors and publishers will make up in volume what they give away in price. This can be true if your price is $1.99 and the competition is priced much higher. What if all the titles on offer are cheap? Consider the fallacy of composition: If only you stand up at the ball park when there is an exciting play on the field, you will be able to see better. What if everybody stands up?

  4. Mike says:

    Curt – has there been any progress with the negotiations, or are they stalled out at the moment?

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