The average price of a best-selling ebook hit a new low last week but ticked up this week for the first time in a month. This week, the average price of a best-selling ebook is $5.81, up $0.40 from last week’s all-time low of $5.41. For the past four weeks, the average price of a best-selling ebook has been below $6.50.
A confluence of factors have been driving ebook prices down: Discounting by retailers; success of lower-priced self-published titles; and experimentation by publishers.
This is really remarkable. Back in July, I noted the probable result of Apple being found guilty of collusion concerning ebook prices: “The good news is that ebook prices should continue to fall to more
economically sensible levels. And the power of the gatekeepers is going
to continue to dwindle as their revenues and profit margins continue to
fall in response to the greater competition they are facing from
independent publishers and self-publishers.”
But I never imagined that prices would fall so far, so fast. Not only have prices fallen below the $9.99 point that the colluding publishers were attempting to raise to $14.99, but only one of the top 50-sellers has a price in the $8.00 to $9.99 range. And since October 1, 2012, the average price of an ebook bestseller has been cut nearly in half, falling from $11.37 to $5.81.
You may recall that the clueless president of the SFWA was very excited about the idea that publishers should pay the same $4.20 in ebook royalties to the author that they were paying on hardcover royalties. How, one wonders, are they going to do that when at an average price of $5.61, (taking the average of the two most recent prices), they are dealing with a gross revenue per ebook of $3.93 after Amazon takes its 30 percent cut.
Assuming the conventional 25 percent ebook royalty, this means the author is going to make $1.40 per ebook and the publisher is going to make $2.53. So, just to tread water, a mainstream publisher has to sell 2.24 ebooks to make the same $5.67 profit per book it was making previously. This is why the publishers fought so hard, and were even willing to break federal antitrust law, to get the price up to 12.99; at that price, they were making $6.82 per ebook, which was an actual improvement on hardcovers.(1)
Very few businesses can survive their profit-per-unit being cut in half. Don’t be surprised to see layoffs at the major publishers, contracts being cancelled, and imprints being closed. If you’re an independent, this is great news as the gatekeepers are dying and you’ll be able to compete on increasingly even ground. But if you’re still hoping to break into conventional publishing, forget it. It’s all rapidly going the way of Random Houses’s Hydra, which is nothing more than an imitation of all the independent publishers, with zero advances and 50-50 royalty splits.
The guy responsible for it is my old editor at Pocket, who gave me my break into the business and was one of the first to recognize the potential in video-game tie-in novels. He’s a smart guy who is always ahead of the curve, and the fact that Random House is moving to this model means that all the other major publishers will soon be following suit. And I very much doubt he’s doing it because he wants to do so, but because it is the only way they can expect to stay in business.
(1) There is a trivial omission in this calculation which I left in for the sake of simplicity and means that the situation isn’t quite as bad as these numbers make it appear. But the consequences of it are fairly minor and don’t change my point in the slightest. Bragging rights to the first person to correctly identify it.