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Who Benefits From High Ebook Prices?

Clearly, higher prices do not benefit consumers. And Amazon is now getting 20% less for each book sold, so it's not benefiting them. Higher ebook prices only benefit one group: Publishers.
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The recent Amazon/MacMillan ebook pricing flap, and the brewing battle over ebook prices with other major publishers, has generated a lot of words, many by authors, protesting Amazon's attempt to dictate terms to the big publishers. Many of these authors have applauded the publishers for winning the right to raise the prices on ebooks. They reacted as if traditional publishers getting Amazon to capitulate is a victory for writers.

It isn't.

Just doing the math makes this crystal clear. (Writers seldom do the math--if we liked math, we wouldn't be writers.)

Under the old Amazon model, the publisher would get half the price of a book--$12 for a $24 hardback. Amazon would list the ebook for $9.99, eating $2 a copy to subsidize folks buying the Kindle. Out of that $12, authors would get $3-$6 dollars depending on their ebook royalty rate.

Now Amazon is shifting to an "agency model," (like Apple's model for the Appstore), where the publisher will get 70% of the retail price. By way of example, let's assume a price of $14.99 for a new release. The publisher takes home $10.50, and the author gets between $2.63 and $5.25. Authors end up losing money, and still have to deal with the archaic royalty reporting system where publishers will take 6 to 9 months to send that money to the authors. This despite Amazon's paying the publisher within 30-60 days.

Clearly higher prices do not benefit consumers. And Amazon is now getting 20% less for each book sold, so it's not benefiting them.

Higher ebook prices only benefit one group: publishers. They're squeezing both ends of the chain. They're paying authors less, they're demanding more from retailers and retail customers. And while their actual income from ebook sales are lower than paper sales, digital sales saves them the costs of printing, warehousing, transporting and accounting for returns (expenses that publishers now peg as a minimum of 10% of the cover price of a book). Ebooks turn out to be more profitable even at a lower, per-unit return.

You may be wondering why the author royalty varies so much? Prior to 2009, when publishers scoffed at the ebook market, they offered writers contracts which gave us half of the money they made off ebook sales. In early 2009, as they realized there actually was an ebook market, they cut the royalty rate to 25% of what they got. This 25% is now considered the industry "standard" and this is the deal they're offering authors as they try to buy up our backlist (old books).

One of my publishers recently offered me the 25% deal on one of my older novels. I turned them down because when I publish the novel myself, either at my website or via Amazon, I make that same 70% the publishers ; and I'll get it in at the most 60 days. Under the traditional model, an $8 paperback, sold on January first, will pay me 80 cents in October. A $5 ebook sold via Amazon on the same day will pay me $3.50 in March. Choosing to publish work electronically myself is really a no-brainer.

So, if you hear authors congratulating the publishers for getting the right to set their own ebook prices, ask them if they've done the math. I have. Higher ebook prices don't benefit me, booksellers or readers, and that means something is really wrong.