Why Do Ebooks Sometimes Cost More?

It seems crazy, but sometimes you can find ebooks on Amazon and other online stores for more than you’d pay for the hardcover. Case in point:  I Am A Pole (And So Can You!), the new kids’ book by Stephen Colbert. As I write this, the price for the ebook is $9.99, yet you can grab the hardcover for $9.59.

So why is that?

It’s because the two editions of the book are sold in different ways. The hardcover is sold on the standard wholesale model used with most physical goods. The publisher sets a suggested price ($15.99, in this case), but then sells it to distributors or retailers at a substantial discount, often around 50% off.

That means a company like Amazon pays roughly $8 for that book and can then sell it at whatever price it likes. In this case, it wants to move a lot of the book, so it cuts its price to $9.59. It only makes $1.59 for each book, but it supposedly makes up for that by selling lots more books.

Ebooks, however, work on the agency model, which is what the music industry uses too. The publisher sets the price for the ebook, and the retailers have to then sell it at that price. Since there’s no physical product to ship, the retailer doesn’t take any risks in carrying the ebook — not even the negligible risks involves with carrying returnable books — so the publisher only gives the retailer an agent’s cut of 30% of the price.

In the case of Colbert’s book, the publisher gets $7 for the ebook rather than $8 for the hardcover, and Amazon takes $2.99 profit instead of $1.59. Even though the publisher makes less money on the ebook, most of them would rather go with the agency model to ensure that retailers don’t discount the ebook so heavily that it destroys their hardcopy sales. In cases like this, it’s just worked a little too well.

Of course, the Department of Justice just filed a lawsuit against the Big Six publishers for allegedly colluding with Apple to force the agency model on its ebook retailers. This means the agency model might go away soon, at least for a while, and we’ll go back to the wholesale model for ebooks too.

It’s a little insane to sell two editions of essentially the same product — at least in the minds of many readers — in two different ways. Moving everything over to one model or the other would solve that, but it’s likely to get more confusing in the short run as some of the publishers ditch the agency model while others fight to keep it.