Why are some e-book prices higher than hardcover ones?

1.  The Telegraph (UK) - on both UK and U.S. pricing situations
The Telegraph's Shane Richmond asks "What's a fair price for an e-book?"

There's been an uproar over Ken Follett’s Fall of Giants (UK page) and Don’t Blink (UK page) by James Patterson and Howard Roughan, as both are more expensive to buy from Amazon and elsewhere as e-books than in hardcover.

Some blame the author, others the publisher, and Amazon often gets the blame despite its rather public opposition to publishers raising e-book prices, a fight it lost with the Big5, whose new non-competitive pricing policies became a reality with the help of Apple's Agency model (details in this blog's earlier articles linked at the bottom).

Even the Telegraph mentions that Amazon has been in "plenty of rows with publishers recently over its efforts to drive prices down."

In checking Waterstone's in the UK, Richmond found that Lee Child’s Worth Dying For is £8.99 in hardback but £13.58 as an e-book. The same is true of The Fry Chronicles by Stephen Fry, A Journey by Tony Blair and the aforementioned Ken Follett, to name a few.

While e-books carry "Value-Added Tax" in the UK whereas the hardback ones don't, Amazon in the UK (unlike in the U.S.) is free of Big5-publisher and Apple Agency demands and therefore

' Amazon sells the e-books of all of those titles for less than the hardback versions – and both formats are cheaper with Amazon than with Waterstones.  The Lee Child book, for example, is £7.59 from Amazon in hardback and the e-book is £6.64 – less than half the Waterstones price. '

Richmond continues, in connection with the U.S. situation:

' Publishers aren’t keen on having their prices driven down... in this case publishers have used the more favourable terms offered to them by Apple, which wants to establish its iBookstore as a competitor to Amazon, as a lever to force Amazon to re-negotiate.

All publishers can do is slow things down, though.   Customers believe instinctively that e-books should be cheaper than the paper equivalent.  There are no printing costs, packing costs, shipping costs or overheads on shelving.   Whatever the publishers might believe, it won’t be them that decides pricing but the market. '

2.  Laptop Magazine - U.S. pricing situation
Laptop Magazine's Anna Attkisson did their own check in the U.S. where the Big5 and Apple have ensured same-pricing at all online stores for their e-books -- though some stores must 'catch up' with the others -- and here are their findings:

. Fall of Giants by Ken Follet
    $19.99 Kindle (Dutton, an imprint of Penguin Group, a Big5 member)
    $19.39 Hardcover at Amazon
    -------
    $19.99 Nook
    $21.06 Hardcover at B&N
    -------
    $19.99 Kobo
    $19.39 Hardcover at Borders

. Don’t Blink by James Patterson and Howard Roughan (Little, Brown & Company)
    $14.99 Kindle (set by publisher Hachette, one of Big5)
    $14.00 Hardcover (set by Amazon as not part of Agency agreement)
    -------
    $14.99 Nook
    $16.37 Hardcover at B&N
    -------
    $14.99 Kobo
    $13.99 Borders

Background
If you're interested in the background of the e-book pricing wars, the earlier stories posted here include:

  . WashPost: State AG probes Apple, Amazon over e-Book prices. What?
  . Amazon removes Macmillan books
  . Amazon surrenders to Macmillan and Steve Jobs
  . Steve Jobs pulls his puppet strings but says too much
  . Amazon plays hardball to keep lower pricing option

Publishers may be seeing lower revenue with the agency plan
Chris Meadows at Teleread.Com reports Publishers complain that agency pricing leads to lower revenue - (Sept 29, 2010).


Kindle 3's   (UK: Kindle 3's),   DX Graphite

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Check often: Temporarily-free late-listed non-classics or recently published ones
  Guide to finding Free Kindle books and Sources.  Top 100 free bestsellers.
    Also, UK customers should see the UK store's Top 100 free bestsellers.

Why the Agency plan worries Random House & why authors should worry

At Teleread (a great site to keep up with daily), this question was posed.
  Does Random House fear agency pricing because it gives authors too much information?

Two of us didn't think that was the reason.  The following is my response in connection with why Random House (at this time) appears to be avoiding Apple's Agency plan in favor of Amazon's traditional wholesaler plan which offers Amazon customers lower e-book pricing on NY Times bestsellers.

  (On the other hand, there's still time for Random House to change its mind for iPad-day tomorrow morning.)  Here's what I posted there in connection with why I think Random House is hesitating to sign up with Apple's iBookstore and why authors with other large publishing houses should be concerned too, no matter what their publishing houses tell them.

' It's so simple, and Random House sees it.

  For a $22 list price e-book (surprising how many are listed at that high a price), TRADITIONAL WHOLESALER arrangement usually gives publisher 50% of the publisher-set list price, or $11 in this case [from Amazon]. If Amazon sells the e-book at $10 Amazon takes a loss -- loss leader method.

Publisher gets more than [the $10] selling price to book-customers. It's a guarantee [of $11 for the publisher] even during special sales.

  Publisher and author still get $11 regardless of what the bookstore sells the book for.

  AGENCY: For a $22 e-book sold at $14 "Agent" gets 30% commission on fixed-price, or $4.20.

  Publisher gets $9.80 -- less money to give to the author.

  ($11 goes to publisher on the wholesale plan on a [$22 list-price-book even if it's sold as a] $9.99 book, which is more likely to sell than a higher-priced one.

  $9.80 goes to publisher on a $14 ebook NOT likely to sell and even if it does, there's less to give the authors.

  [The publisher] gets to say the e-book is more 'valuable' -

but, as mentioned, the customer is likely NOT going to buy the $14 e-book and so the publisher/authors get even less than that.

  Random House is not stupid. The examples are for the same e-book selling at (first) $10 under the wholesaler plan -- traditional -- and (second) at $14 under the new Agency plan.

 That's more like best scenario for the publisher using the agency plan -- they get even less when the book price IS reduced to $10 or $12. '

($7 or $8.40 instead of $11)

(Adding for the blog)
  The Big 5 publishers seem to hope people will decide to buy the hardcover books under that scenario -- more for almost the same price, on discounted hardcovers -- or at least easily pay the higher ebook price.
  They're in for a big surprise if so.

Amazon and Hachette e-books

The Amazon forum had a posting yesterday
from "The Amazon Kindle Team" about missing buy-buttons
for some Hachette e-books.

' We recently signed an "agency" agreement with Hachette and we are working with them to offer their books under these terms in the coming days.  This means we will not be selling Hachette ebooks in the interim.

  Update: Hachette has disallowed the sale of Kindle books except on agency terms effective as of 12:01 am this morning.  We came to terms late last night but we cannot be operationally ready to sell their ebooks on agency terms until two days from now -- April 3 -- when we will also cut over for the other publishers that are switching to agency.

  If we can get a two day extension from Hachette to continue selling their ebooks under the prior terms, we can have the Hachette ebooks promptly back for sale today.  If not, then they will be back on April 3. '

People who do business programming know how true this all is, but the rush (requested by publishers) to get contracts in place -- so one CAN sell books at all because Apple's conditions of selling iBooks in its iBookstore require that publishers do not allow any other bookstores to sell at lower prices than Apple's -- has invited not a little chaos.

OTHER BOOKSTORES
Sony has announced it will be doing the same with some temporary inability to access certain books not yet priced in the site software to show the Agency plan.  See FinancialTimes for some detail on that.

  Under Apple's Agency plan, Amazon and other online bookstores are no longer wholesaler bookstores, now having to agree instead to being an 'Agent' with no say on actual selling prices.  The traditional way had booksellers buying at about 50% of the higher List pricing set by the publisher and then setting the bookstore price, with special sales possible. (No longer.)  The bookstores are now pushed to make customer prices 30% to 50% higher.

  This will be true for Barnes & Noble as well as for Sony and other bookstores online, thanks to Apple and Steve Jobss' preference for stiffing customers rather than participating in an atmosphere of 'competitive' pricing and they've ensured that other bookstores will not be allowed by the Big 5 publishers to price ebooks lower than Apple's e-book prices for the Big 5.

EITHER / OR
  If Amazon did not agree to Apple's Agency pricing, then the publishers would have had to choose either Apple or Amazon to sell their books.  They naturally would go to the bookseller-agency that will allow them to set higher prices.  So, in the name of competition, we get much higher prices thanks to a company that has not sold one e-book before this Saturday.

WHO WILL BUY AT THE HIGHER PRICES?
 From all I read, there will not be many buying e-books at $15 for a digital book that cannot be loaned or given away -- one that is not 'owned' in the traditional sense.  Macmillan appears to not want e-book sales at all unless they can price them close to discounted hardcover prices.

  Random House, who has not gone with the Apple plan yet, has estimated they could lose 7% in revenues from the plan, probably because they may actually calculate in consumer interest in buying the e-books at higher pricing.

  If Random House doesn't sign with Apple under Agency terms by Saturday, the books won't likely be sold there -- or Apple may allow them to use Amazon's traditional plan while having e-books in the Apple store, which would make the Amazon Random House e-books more competitively priced.  But it would cause other publishers to feel they could choose one plan with Amazon and an Agency plan with Apple, so Apple's not quite as likely to allow that.

VARYING SPIN ON AMAZON "CAVING" OR "CONTINUING TO WIELD VAST MARKET POWER"
  I noticed that a tech news-site's Amazon' columnist characterized Amazon's agreements Thursday with Simon & Schuster and with HarperCollins as "caving" to the publishers while at the same time describing Apple's as "agreeing to" their pricing (nice difference) without mentioning that Apple was reported by the Wall Street Journal a week before the iPad launch as *recommending* that the publishers set the higher pricing.

  My comment about that was posted for the night but was deleted the following morning and no comments allowed after that.  One has to wonder about newspaper publishers' fear of making Apple unhappy.  Or it just could be that the columnist did not want to display any disagreement with what he said (at least not anymore).

When the Hatchette e-book buy-buttons were missing on some books, he of course chose to characterize that as Amazon "wielding its power" ... but it's Hachette that doesn't want the books made available until the software is in place to sell them for higher prices starting immediately.  At least today he wrote, finally, that Apple had "forced" the higher pricing on Amazon.

  But, back to columns less bent on spin.  The Wall Street Journal reported it this way:

' There are clear signs of the glitches and confusion that many expected would accompany the adoption of a new e-book pricing model.

E-book titles sold by Lagardere SCA's Hachette Book Group were absent from Amazon.com Inc. Thursday due to technical issues, for instance.  The publisher said it had reached a deal with Amazon to sell e-books under the new "agency" model but its titles won't be available on Amazon until Saturday.

"It's not about retaliation, it's about logistics," said Maja Thomas, senior vice president of Hachette Digital.
  A note on Amazon's Web site states "we cannot be operationally ready to sell their e-books on agency terms until two days from now—April 3." '

Amazon will still be able to sell other, smaller-publisher books at lower pricing but with a higher net amount going to the publisher and authors.  Apple is of course trying to prevent that by snagging the other publishers and not allowing them in the iBookstore store unless they agree not to give their books to other bookstores unless those other bookstores adopt the Apple pricing plan.

  Apple has a dazzling product and they don't need to spoil it with these shenanigans but it's been Jobs' way of operating.

MediaBistro's Jason Boog writes that Hatchette explained the situation of unavailable e-books, in a letter to its agents and authors:

' ...The email continued: "However, as with any transition, we expect there will be a few hiccups along the way, and you may even see some short-term interruption in the availability of our eBooks, especially in the first few days, as systems are being adapted to accommodate changes.  We fully expect any such issues to be resolved within the first week, as we smooth out the new processes." '

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See the ongoing Guide to finding Free or Low-Cost Kindle books and Sources
Also, a page of links that confine searches to mid-range priced e-books.