Amazon, Macmillan, and the eBook Price War

macmillan01Yesterday Amazon customers started to notice that there were titles missing from the online bookseller’s virtual shelves. It soon came to light that all of the books no longer available for purchase were from Macmillan Publishers, part of the Holtzbrinck Publishing Group. This affects a vast number of books from divisions and imprints such as Tor/Forge, St. Martin’s Press, Palgrave, Nature Publishing Group, and many more.

Today John Sargent of Macmillan ran an advertisement/open letter in Publisher’s Lunch explaining that Amazon was the one who pulled all of the titles from both the print book side as well as the Kindle store. The reason? Apparently Amazon and Macmillan couldn’t come to an agreement on eBook pricing and this was the bookseller’s response.

The eBook price war has been brewing for a long time, though most consumers have likely been unaware of it until recently. The essence of it is that Amazon wants consumers to expect that eBooks should cost $9.99 – all titles, not just new ones or best sellers. According to the Washington Times, consumers want them to be even cheaper.

When eBooks cost the same or very close to their paper versions most consumers don’t understand why. After all, an eBook is digital, shouldn’t it cost less to produce and thus have a lower price? Add to that the expectations iTunes and other digital music sellers have set up with consumers (99 cents feels cheap, but in many cases record companies come out ahead on a per track basis). That Washington Times article posited the issue as a problem between publishers and consumers with Amazon on consumers’ side.

However, that’s not the whole story.

I spoke with Jeremy Lassen of independent press Night Shade Books to try and get my head around why eBooks aren’t far cheaper than print books. After all, printing, shipping, and distribution costs go away, right? “The costs saved from eBooks are really inconsequential,” Lassen countered. “Shipping costs are paid by retailers and wholesalers, not publishers, so there is no ‘savings’ to the publisher.” According to other sources in the publishing industry, printing costs average 8 – 10% and shipping costs are a factor, though not as much as I would have assumed.

Another aspect consumers aren’t often aware of is how much of the book’s price goes to the retailer, the publisher, and the author. Even once you cut out the distributors and wholesalers, Amazon is currently taking 50% of the cover price for books sold on the Kindle store. Depending on the contract, an author might be getting a larger cut of what the publisher earns for the eBook edition than they would for a print sale. This translates into less money for the publisher overall as the savings from selling an electronic copy are eaten by the retailer and, in some cases, the author.

Lassen also pointed out that there are other costs for producing a book that have nothing to do with electronic vs. print: design, cover art, editorial fees, marketing and promotion. Ballpark costs to produce a book for print might range from $5,000 (an estimate based on an independent press’ overhead) to $20,000 depending on the book and the publishing house. The majority of these costs go toward the first edition and don’t have to be replicated for other formats — paperback, mass market, electronic, etc. — and the majority of houses don’t produce only eBooks.

“In the long run, dead trees are going to be the tail, and eBook is the dog,” Lassen said. Presently, eBooks are akin to another edition of a book, and when sold alongside print editions the dead tree sales are the real money makers. However, publishers aren’t just looking at the present market, they’re looking toward the future. Print books may never go away, but a time when the balance shifts toward electronic editions isn’t inconceivable, nor perhaps very far off.

Thus publishers are extremely reluctant to go below the $9.99 price point because of the minimal gains. If an eBook could earn the same amount of money for the publisher as a print sale at $4.99 that would be one thing. According to Lassen, this can’t happen as long as Amazon is taking as large a chunk as they do.

Next: Amazon changes it’s terms — will it be enough to drive down prices?


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  1. John Chu Says:

    The 70/30 split applies only if you use the Kindle Digital Text Platform. i.e., only if you publish via Amazon’s self-publishing arm.

  2. Michael Canfield Says:

    I’m really surprised the hear that print costs amount to only 1% of retail price point. It seems like I hear all the time that publishers now don’t want books longer that 125000 words (and lately I’m hearing 90 – 100K0 especially from newer writers, in order the keep the retail cost of (in particular) hardbacks low.

    Good post, K.T. Lots of thought-provoking information.

  3. Jim Henley Says:

    Dear KT Bradford: Every other source I’ve checked the last couple days indicates that printing costs are TEN TIMES what you quote your source claiming – 10% of cover price, not one percent. At face value, your source is saying it costs A QUARTER to print most new hardcover books. Did this pass your smell test? Did you attempt to verify the claim? Or is this an uncorrected typo?

  4. K. T. Bradford Says:

    I’ve gotten numbers from some other sources, too, and found a pretty wide range, but I updated the post to reflect the 8 – 10% average seen by most publishing houses.

  5. Jim Henley Says:

    Right. 10% of the retail price is a significant amount! That’s 20% of the publisher’s take on a trade book at standard wholesaler discounts. And if you’ve previously followed the book business, you’ll know that you can’t get through a season without publishers complaining of “rising printing costs” and their dire effect on pricing.

    The other thing none of your sources bring up is returns and never-sold stock. Together they average 40% of all copies printed. Together, manufacturing costs and returns reserve will run $6-9 dollars on a new hardcover, depending on where that book falls in the typical $25-30 price range. THAT is the size of the windfall when the business moves from paper to bits. What Macmillan and your friend Jeremy are implicitly saying is that NONE of that surplus value should go to readers; we should keep paying what we’ve been paying while the institutions upstream from us pocket the savings.

  6. David Fouch Says:

    Jim,

    Can you site your sources, I could actually use that information for a current paper I’m working on.

  7. David Stillwell Says:

    Retail price being different from sale price? There is no way that a 350 page hardcover book with it’s slick magazine cover can be produced for under two dollars. Even under four dollars sounds suspicious to me. paper, ink, binding and that slick cover. Even with cheap paper that yellows in six months it would have to cost four dollars. Then there are the other costs mentioned by previous posters.

    The publishers could always sell the electronic books on their own Web sites in PDF form. $4.99 would be very profitable for them done that way. If people want the books at that price in that form then word will spread. If I were Amazon that is what I would be worried about, that Amazon would just become an advertiser to drive buyers to the publishers Web site for the E-book.

  8. speedball Says:

    not completely true
    there ARE costs to converting a real book to an ebook
    so that it will be readable and usable in that medium

    ebooks also have unique costs that real books do not

    one big factor that is overlooked is all the middlemen with their
    hands out wanting a percentage. if i gave a percentage to everybody
    who asked then i would be paying 120% or more for the privilege of
    publishing my books.

    i pay fixed charges based on value. then i can guarantee a profit
    so that i can afford to keep creating books, and authors will want
    to keep writing them.

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