E-book Sales Hit a Speed Bump in Early 2015

According to a 3 September article in the Wall Street Journal by Jeffrey Trachtenberg, recent e-book distribution deals struck between the major publishing houses and Amazon.com may find the online retail giant vindicated through its seemingly recent defeat. Within the first few months of these new policies having been put into place, the industry has seen a commensurate decline in e-book revenue and sales. The major publishing houses got what they wanted: the right to set higher prices. What they may not have bargained for was a huge hit to the top line. One can almost imagine Jeff Bezos laughing and wagging a knowing finger at the publishing houses, an I-told-you-so kind of moment justifying the corporate strategies of the Seattle behemoth.

2014 marked an end (somewhat) to the tumultuous back and forth between Amazon and publishers, most notably coming to a head with the well-reported Hachette struggle. Through the fall 2014, one agreement after another was signed between Amazon and the large houses that allowed the publishers to set their e-book pricing. The result? Higher e-Book prices are now found throughout Amazon; an ostensible win for the publishers who saw Amazon’s low ball approach undercutting profits to both publishers and authors, and their tactics analogous to corporate bullying. But not so fast.

According to the Trachtenberg article, increased prices have correlated almost directly to a plummet in e-book sales. According to the Association of American Publishers, revenue for e-books fell 10.4% as compared with the same period in 2014. Coincidence? Maybe, but unlikely.

Yet publishers aren’t willing to accept defeat nor direct causality just yet. They point to a recent lack of hot titles and perhaps a seasonal slump. In the words of one executive, who, like the industry writ large, refuses to accept the possibility that the recent victory be in fact be hollow: “this is a title driven business…. if you have a good book, price is not an issue.” Perhaps, but it is hard to imagine that the changes in price are not affecting sales. And the changes are quite radical.

As Trachtenberg points out, and I have confirmed, what was once a landscape of $9.99 eBooks is now a significantly pricier Amazon shopping experience. For example, Jonathan Franzen’s new release, Purity, is available for $14.99 in its Kindle e-book version, while the newly released hardcover edition sits one click away at only $15.10. For any Prime member of Amazon, with its free two-day shipping, it really is only a dime more. I had to look twice.

Several factors may be in play. First, e-book sales were already stagnating since 2013, and recent data may indicate a larger cultural shift at work, as the pendulum is possibly swinging back toward physical books. More likely, though, we might have to start with the simple fact, supported by every economics 101 class, that a large increase in price has impacted sales. E-books are clearly not a product commanding inelastic demand.  What complicates the analysis further is the tiny difference in price between e-books and their hardcover counterparts. Further market research might reveal an unsurprising fact given all the evidence: that former Kindle readers are now cozying up by the fire with a real paper product in their hands. Why not, when it only costs another dime?

While the top line to the publishing companies may have taken a hit, in terms of eBook sales, it would also not surprise to find a corresponding increase in hardcover revenues. Time and data will tell.

Greg Pece

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