Are ebook prices falling? Sometimes…

“Pricing for us is a daily, hourly, minute-by-minute discipline,” Michael Tamblyn, Kobo’s chief content officer, said in an IDPF panel at BookExpo America on Thursday. Year on year, Kobo sees an eight percent decline in the prices worldwide that consumers are paying for ebooks, but it is “by no means a straight line.” In the first quarter of this year, the global average sales price of a Kobo ebook was $7.50.

The downward trend is driven largely by self-published authors, Tamblyn said, stressing that the global prices of traditionally published ebooks have remained roughly stable, with prices varying by about $0.50. Following big publishers’ settlements with the Department of Justice in the ebook pricing case, the prices of their ebooks have settled as well — “slightly north of pre-agency” prices, Tamblyn said. “Almost all the change that we see in overall global price point today is coming from self-publishing…it’s the primary pole that has been rooting price downward over time.” (And it is a significant part of the business: Kobo says that self-published titles represent 20 percent of its unit sales, with about half of those coming from authors publishing directly through Kobo’s own platform, Writing Life.)

Kobo’s finding that traditionally published ebook prices are holding stable appears to directly contradict data presented by Dan Lubart at the Publishers Launch conference on Wednesday. Lubart, who founded technology services company Iobyte Solutions and is now the SVP of sales analytics at HarperCollins, compiles Digital Book World’s weekly ebook bestseller list, which is divided by price bands. Lubart draws his conclusions using publicly available data from the U.S. Kindle and Nook bestseller lists. He said that the average price of a Kindle bestseller dipped starting in the 2012 holiday season and and has remained lower since, even when works below $4 (which tends to include self-published books or traditionally published books undergoing price promotions) were filtered out. Publishers “have to start lowering our prices ahead of market realities that we see coming,” Lubart said.

…and in some places

I asked Tamblyn why Lubart’s data shows traditionally published ebook prices coming down while Kobo’s data shows them rising. Tamblyn stressed that just looking at a retailer’s bestseller list can produce a “wildly distorted” picture, in part because midlist and backlist ebooks are a much larger part of the market than they were two years ago. He also reminded me that Kobo is looking at global data, not just data from the U.S.

So how do average ebook prices compare globally? “The U.S. is neither the most nor the least price-competitive market in which we operate,” Tamblyn said. “There are very different prices that customers are used to paying and willing to pay on a market by market basis.” The average selling price of a Kobo ebook in the U.S. is about $7.20; in Canada, it’s $8.12. In the U.K. — “for our money, the most ferociously competitive price market in the English language” — the average selling price of a Kobo ebook is $5.76. Consumers in the E.U., meanwhile, appear willing to pay more for ebooks whether their country has price protection laws (Germany: average price $9.90; France: $10.40) or not (the average selling price in the Netherlands, where ebook prices are not fixed, is $11.29).

Free sometimes drives sales, but it’s not worth it for everyone

Both traditional publishers and self-published authors are increasingly experimenting with offering temporary price slashes on their titles. Josh Schanker is the founder of BookBub, a site that sends its members daily email newsletters alerting them to ebook sales, and he presented some of his company’s findings in the IDPF panel alongside Tamblyn. “The greater percentage discount the publisher offers, the greater the response rate,” Schanker said. BookBub has found that ebooks discounted by 90 to 99 percent saw 300 percent more click-throughs and purchases than ebooks discounted by 60 percent.

BookBub has found that ebooks that are discounted more steeply sell more copies once they are returned to full price. “The more that people take advantage of an author,” Schanker said, “the more they will buy books by the same author.” And BookBub finds “publishers, on average, will ultimately sell a lot more books when they do a free giveaway.”

The power of free depends a lot on the author whose book is being discounted, though, Tamblyn said. “Giving away books for free if you are a bestselling author with a really well-established brand…doesn’t have nearly the effect that it does when you are a self-published author trying to get books into the hands of people who have never heard of you before.”

Readers probably won’t chase retailers for ebook sales

In July 2012, Sony began running a promotion in its U.K. store where it sold ebooks for just 20 pence (USD $0.30). (The promotion ended in March.) Many other retailers, including Kindle U.K., matched those prices; Kobo didn’t. “We actually saw no change in our market share as those promotions were running,” Tamblyn said. “Mostly, retailers sold 20-pence books to their own customers and didn’t generally take anyone else’s customers. They essentially did a massive margin write-down to themselves…it was an interesting lesson in the relative stability of customer bases, and customers’ loyalty to a particular platform once they’ve joined it.”

In addition, Kobo says its revenue grew by 98 percent in the first quarter of 2013, compared to this time last year. During the quarter , it says it “grew its user base by 2.5 million readers, bringing its total registered users to 14.5 million, with 15 percent of its new user base coming from the U.S.” That last point is important, as it suggests the Toronto-based Kobo is making some progress in cutting into a U.S. e-reader market dominated by Amazon and, in a distant second place, Nook.

Kobo’s been stressing for awhile that the e-reader market is alive and well: In January, the company said it doubled its e-reader sales in 2012. The company is also expanding rapidly. The Aura, currently available in the U.S., U.K., Canada, Italy and Germany, will launch in Australia, France, the Netherlands and Brazil “in coming months.” More broadly, Kobo plans to expand to India, China and Russia.

The company also revealed that ebooks released through its year-old self-publishing platform, Writing Life, now make up 10 percent of its revenue, “with 10 percent of the top 50 bestseller list comprised on independent authors.”

Kobo makes four devices: The 5-inch Kobo Mini e-reader, for $79.99; the touchscreen Kobo Touch e-reader, for $99.99; the front-lit Kobo Glo e-reader, for $129.99; and the Kobo Arc Android tablet, for $199.99. Last year, the company stopped selling them through its website and only made them available through chains like Target and Best Buy as well as the independent bookstores that Kobo partners with through the American Booksellers Association.

A Kobo spokesman told me that last year, the company’s “top priority” was to “meet the demand of holiday shoppers around the world. As such, we paid close attention to our distribution channels to ensure that our retail partners were fully stocked for the busy buying season.We established a distribution process that runs very well, and were very happy with our end-of-year results, with Kobo’s E Ink eReader sales up nearly 150 percent in December. To further expand on our offerings and to provide customers with another place to purchase we are now offering our world-class devices and accessories through Kobo.com.”

Kobo says it has 13 million readers worldwide. The company launched in Brazil, Portugal, Italy, Japan, Spain, South Africa and the Netherlands in 2012 and plans to head to Russia, India and China in 2013. In the United States, its share of the ebook market is small and lags behind Amazon, Barnes & Noble and Apple.

An earlier version of this article implied that Kobo had begun selling devices through its website for the first time. In fact, The Digital Reader notes that the company had once sold devices on its website, stopped last year and has now started to do so again.

The piece was updated with a comment from Kobo on Tuesday afternoon.

The case was filed in New York’s Southern District court (which also oversaw the Department of Justice’s antitrust suit on ebook pricing) on February 15 and was first noticed by the Huffington Post Wednesday afternoon. The named plaintiffs are Manhattan-based Posman Books, Book House of Stuyvesant Plaza and Fiction Addiction of Greenville, South Carolina; they seek to represent “all other similarly situated independent brick-and-mortar bookstores.”

The filing cites estimated market share for Kindle, Barnes & Noble’s Nook and Apple’s iBookstore as evidence that Amazon has a “dominant position” in the ebook market. The estimates cited are generally accepted in the publishing industry — over 60 percent for Amazon’s Kindle e-readers, around 25 percent for Nook and under 10 percent for the iBookstore (though some believe that Apple’s market share has grown ). The filing says Nook is Kindle’s “only substantial competition” but, in reference to recent news and earnings reports, notes Barnes & Noble is “experiencing financial difficulties and will be downsizing by closing a significant portion of their brick-and-mortar bookstores.” The filing doesn’t mention Kobo, but Posman, Book House and Fiction Addiction all sell Kobo ebooks through the company’s partnership with the American Booksellers Association.

To be clear, Barnes & Noble, Kobo and Apple also sell ebooks with DRM on them. Barnes & Noble and Kobo use Adobe DRM, and Apple uses its own proprietary DRM on ebooks — but that appears not to be at issue in this case because of Apple’s reportedly small ebook market share. (The filing does mention that Apple doesn’t use DRM on music.) Rather, the filing takes issue with Amazon’s proprietary DRM, AZW: “Ebooks with the AZW DRM can only be read on a Kindle device or on another device enabled with a Kindle application…the Kindle app works solely with ebooks sold by Amazon.” While the case names only the big-six publishers as defendants, Amazon places its DRM on nearly all of its ebooks from all publishers.

The filing says that big-six publishers, through their contracts with Amazon that allow for Amazon’s proprietary DRM on their ebooks, “unreasonably restrain trade and commerce in the market for ebooks” in violation of the Sherman Act,” and claims “consumers have been injured because they have been deprived of choice and also denied the benefits of innovation and competition resulting from the foreclosure of independent brick-and-mortar bookstores.”

Most of the filing, though, is spent on Amazon, which the plaintiffs accuse of purposely creating a monopoly on ebooks in the United States. According to the filing:

The aforesaid conduct and acts of Amazon and the big six were engaged in by Amazon with the purpose and intent: (1) to injure, suppress, destroy and irreparably harm Plaintiffs and the other Class Members in the relevant market; (2) to monopolize the market for the sale of ebooks in the United States; (3) to reduce or eliminate sales of ebooks by Plaintiffs and the other Class Members; (4) to control prices; (5) to reduce the variety of offerings that would otherwise be available to consumers; and (6) to unlawfully monopolize trade and commerce in said relevant market.

The plaintiffs seek an injunction “prohibiting Amazon and the big six from publishing and selling ebooks with device and app specific DRMs and further requiring the big six to allow independent brick-and-mortar bookstores to directly sell open-source DRM ebooks published by the big six.” It’s unclear what the plaintiffs mean by “open-source DRM.” Alyson Decker, the Blecher & Collins attorney overseeing the case, said she couldn’t comment specifically on the technicalities, but it seems as if the plaintiffs want some kind of DRM that would operate across platforms.

Decker told me that independent bookstores’ agreements to sell ebooks through Kobo aren’t sufficient: “My understanding is that the Big Six do not currently have any direct agreements for ebooks with independent brick and mortar bookstores comparable to the agreements they have entered into with them for traditional books. While some independent brick and mortar bookstores are able to sell ebooks for Kobo, my understanding is that that agreement is with Kobo and not directly with the big six.” Many independent bookstores may lack the technical knowledge and infrastructure to be able to sell ebooks straight from the publishers, but the filing doesn’t get into details on exactly how such a system would work.

I got a demo of Bookish at the company’s trendy, book-filled offices in Manhattan’s Flatiron District last week, and had a chance to use the site further on Monday when it was prematurely available online for several hours as it was being tested. Overall, I think the long-delayed Bookish is off to a promising start.

Bookish has the opportunity to shape book discovery and offers publishers a chance to directly engage with readers. It also allows them to tiptoe into direct sales. I’m less intrigued by the original editorial content: I’m not sure it differentiates itself enough from other book-related content on the web to draw users to the site for the first time. Once those users make their way to the site, though, they’ll find a clean, easy-to-use design, and an algorithm that may well find them their next book — even though it’s limited to less than a quarter of the books on the site for now. Here’s my overview of the site.

 The basics: Books and authors

While only three of the big-six publishers are financially backing the site, the other three — Random House, HarperCollins and Macmillan — are making their books available through it, along with 10 other publishers including Scholastic and Houghton Mifflin. In total, that’s 1.2 million unique titles spanning 18 genres (fiction and literature, children’s, cookbooks, and so on), and 400,000 authors have profile pages. The book pages include basic information, a preview of the first chapter, related news and videos, and a roundup of any “must-read” lists that the book has appeared on (for more on those lists, see below). Each book page also includes purchase links (more on that below, too).

Algorithm-generated book recommendations

Online book discovery is a huge problem for publishers, and Bookish tackles it with a recommendation algorithm that lets users input up to four titles to find what to read next. “We’re very much a technology company,” Karen Sun, an MIT grad (and book blogger) who is heading the company’s recommendation engine, told me. “This is probably the largest venture in the book space, in terms of data.” Sun explained that while Amazon and Goodreads primarily deliver book recommendations based on “collaborative filtering” — namely, a user’s purchasing or rating and reviewing history as well as those of other users — Bookish doesn’t have that user or purchase data yet. Instead, it relies on “deep, introspective” data: “Recommendations are based on the books and understanding of the books.” The recommendation looks at features like the authors, editors and illustrators who contributed to a book, the awards a book has won, and genre and publication date, then layers on a machine-learning component that parses user and professional reviews to try to distill themes, concepts and sentiments. Insights from the editorial team are included, too.

A user who liked The Help, for instance, receives recommendations for Hotel on the Corner of Bitter and Sweet by Jamie Ford — another women’s fiction title that features race relations — and The Guernsey Literary and Potato Peel Pie Society, a book that, like The Help, includes an aspiring female author. Type in Malcolm Gladwell’s The Tipping Point and the engine pulled up four similar “big ideas” books, but also two Spanish-language titles that were out of place even if the subject matter was similar (and you’ll see a Spanish-language edition of The Room in the recommendations for The Help above).

For now, Bookish’s recommendation engine works with only about 250,000 of the 1.2 million books on the site. Sun says the engine will improve over time, and will eventually integrate reader reviews and user actions — other books users have looked at and rated on the site.

E-commerce: Essential, but…

Each book on the site can be purchased in print or digital formats directly through Bookish or from another retailer — there are affiliate links to Amazon, Barnes & Noble, Books-A-Million, IndieBound, Apple and Kobo.

Distributor Baker & Taylor is handling all of Bookish’s direct sales. For now, ebooks purchased through Bookish are only available in EPUB and PDF formats, for reading on iPad, Android, Nook and desktop — no Kindle.

Bookish seems to want to stress that it’s not cutting into other retailers’ sales, even though a serious direct-sales outlet is something that book publishers desperately need.

“We want to be able to say you can buy [a book] here and it’s reasonably priced. We’re not trying to steal sales away from other places,” CEO Khazaei told me. Publishers probably don’t care about taking sales from Amazon, but they may not want to sour relationships with retailers like Barnes & Noble and the independent bookstores represented by IndieBound.

Bookish’s print and ebook prices appeared to match those offered by Amazon, though I wasn’t able to test many titles. Khazaei told me that “I don’t know how the pricing decisions are made, really,” Khazaei said. “I assume [Baker & Taylor] is tracking [prices on other sites] but we just leave it in their hands.” While the site seems like an obvious place for publishers to run special sales on both print and digital books, that doesn’t seem to be a priority for now. Update: Khazaei stressed to me that his lack of involvement with pricing is required by the Department of Justice in order to be compliant with antitrust regulations. (The DOJ sued Hachette, Penguin and Simon & Schuster, along with Macmillan and HarperCollins, last year for allegedly colluding to set ebook prices; Hachette, Penguin and S&S all settled.)

Original editorial content along with the algorithm

Bookish has seven full-time editors who each manage different genres and update those sections daily with original book coverage. The site is also soliciting pieces from well-known authors and other public figures. In one ongoing feature, for instance, editors from The Onion review books. Other editorial features at launch include a column by Eat, Pray, Love author Elizabeth Gilbert and an interview between bestselling thriller authors Michael Connelly and Michael Kortya. In addition to that content, the site’s editors are curating columns and lists of books like “The Biggest BFF Breakups in YA Books” and “Big Ideas.”

Advertising, revenue and partnerships

Bookish is collaborating with USA Today’s books website. Its original editorial content will be syndicated on USA Today’s website, and the technology that Bookish uses to let readers view the first chapter of a book and to offer book recommendations will also be included on USA Today’s site. In exchange, Bookish will feature USA Today’s book bestseller lists on bookish.com.

In addition to book sales, Bookish will get revenue from advertising. For now the site’s ad slots are taken up with books from the three launch partners, but eventually the company will expand advertising to other publishers and to companies from outside the book business. Prior to its launch two years ago, Bookish had announced an advertising and content syndication deal with AOL Huffington Post, but that’s off the drawing board for now. A company spokeswoman told me Bookish is “in discussions about continuing to work with AOL in the future.”

Not a focus: Social, self-publishing

Other publishers can sign an agreement with Bookish to add their titles to the site. (Khazaei told me Bookish doesn’t charge publishers anything to join, but they presumably have to fulfill a number of requirements to be included.) However, self-published authors can’t add their books. “The focus right now is on traditionally published titles,” Khazaei said.

Also at launch, the social features that are a key part of Goodreads’ mission are absent from Bookish. Users can’t friend or follow each other — the focus is on a reader’s individual interests. I found that refreshing: Just because you’re Facebook friends with someone doesn’t mean that he or she shares your book preferences, and I prefer the algorithm-driven approach.

The Kindles are for sale at Amazon.ca and at about 1,000 Canadian retailers, including Staples, The Source and Shoppers Drug Mart. The bare-bones Kindle is CDN $89 (USD $89.12). The Kindle Paperwhite is CDN $139 (USD $139.19) for WiFi only or CDN $199 (USD $199.28) with 3G. Cheaper ad-supported models aren’t available.

The Kindle Fire still doesn’t ship to Canada, though it’s available in the U.K., France, Germany, Italy and Spain.

Booknet Canada reported last year that Kobo has about 27 percent of the Canadian ebook market, followed by Kindle at 19 percent and iPad at 14 percent. Peter Larsen, VP Kindle, told Huffington Post Canada, “In every country where we’ve launched the Kindle e-reading ecosystem, it’s very quickly become the best-selling device in that country, and we’re cautiously optimistic that that same thing will happen in Canada.”

The Nexus 7, on sale in Japan via the Google Play website today, will sell for 19,800 yen (about $254) in Japan. Buyers also get a 2,000-yen credit to the Google Play store. Reuters reports:

Japan has rapidly embraced the smartphone, with devices running Google’s Android operating system tripling in the past year, according to Google. Google said that Japan now ranks third in terms of downloaded applications from its Play store.

Reuters also says that in addition to rental movies, Google will sell movies from Sony and Paramount to customers in Japan.

In addition to Japan, Google ebooks are now available in the U.S., Canada, Australia, Germany, Spain, Italy, France and, as of earlier this month, South Korea. Kobo, owned by Japanese e-commerce giant Rakuten, launched in Japan in July. Amazon is expected to launch the Kindle e-reader in Japan in October.

Brazilian newspaper O Estado de S. Paulo reports that Livraria Cultura will sell the e-readers for lower prices than imported Kindles. Amazon has not officially launched in Brazil but is expected to do so by the end of this year.

Livraria Cultura, which has 14 stores in Brazil, already sells 330,000 ebooks through its website; following the partnership with Kobo, it will sell 3 million. Only 15,000 of the ebooks are in Portuguese.

Ebook sales makes up less than 1 percent of overall book sales in Brazil, but the country is believed to have huge potential for digital reading. Bowker recently found that 18 million Brazilian adults with Internet access have read an ebook.

Photo courtesy of Flickr / gaby bra

(Note: The chart is cutting off part of the last column, Sony. You can see my full pricing spreadsheet here.)

A couple notes:

• Amazon doesn’t show the ebooks’ list prices. I had to go to Barnes & Noble for those. I obviously haven’t looked at HarperCollins’ entire list, but you can see that in some cases it’s raised ebooks’ list prices. For example, Michael Chabon’s upcoming Telegraph Avenue, which would have been priced at $12.99 or $14.99 under agency, has a list price of $17.99 in the new world.
• Apple is now discounting titles too (that wasn’t true yesterday). In some cases, as you’ll see above, Apple is offering lower prices on new bestsellers than Amazon. Amazon dropped prices to match Apple’s this afternoon. More on that here.
• Amazon is offering the lowest prices. Based just on the titles above, the average price on Amazon Kindle was $8.43; on Apple, $9.81; on Barnes & Noble Nook, $9.57; on Google Play, $9.91; on Sony (SNE), $10.42; on Kobo, $12.25.

Photo courtesy of Shutterstock / Thomas Bethge

To be sure, Barnes & Noble was first to launch a front-lit e-reader, the $139 Nook Touch with GlowLight, and until today it’s been the only front-lit e-reader on the market. Unfortunately, Barnes & Noble experienced “production scaling issues” that prevented it from fulfilling GlowLight orders for a few months. The Nook with GlowLight is back in stock now, but as of today it doesn’t matter since the Kindle Paperwhite and Kobo Glo have better displays.

Nook with GlowLight has a regular e-ink screen. When you hold it (without its light turned on) next to a Nook without a GlowLight, their screens look the same — grayish. Compare the Kindle Paperwhite to an earlier generation Kindle, though, and their screens don’t look the same. Amazon says the Paperwhite contains 62 percent more pixels and 25 percent increased contrast, and you can see that just by looking at it — even when the light isn’t on. (Update: Some commenters, using other photos online, say the Kindle Paperwhite does not have a brighter screen when the light is turned off. Holding my Kindle Touch up to the Paperwhite at the event, I could see a difference in resolution but should have been more hesitant to claim anything about the brightness of the screen with the light turned off. When we get a Paperwhite for review, I’ll have more pictures for you.) In other words, we’re not just getting a light here, we’re getting an improved display overall. The Kobo Glo has an XGA e-ink screen, which also means better resolution and contrast.

The biggest difference between the Kindle Paperwhite and the front-lit devices from Barnes & Noble and Kobo, though, is battery life. Jeff Bezos said during Thursday’s press conference that Amazon expects people to leave the light on all the time, even in bright rooms. While Barnes & Noble stressed the Nook with GlowLight’s use in bed, in a dark room, as your partner sleeps next to you, Bezos says Amazon “figured out early” that people want the light on by default. We’re used to staring at well-lit computer and tablet screens, after all. So the Kindle Paperwhite’s battery life is 8 weeks with the light on (based on half an hour of reading a day). Meanwhile, Nook with GlowLight’s battery life is a month with the light on (based on half an hour of reading a day) and two months with it off. Kobo’s is worse: A month with the light off, “up to 55 hours of continuous use” with the light on.

Finally, assuming that you’re okay with ads, Amazon beats the competition on price as well as other features. The Kindle Paperwhite WiFi is $119 with special offers, $139 without, and the Kindle Paperwhite 3G is $179 with Special Offers and $199 without. (Yes, $199 is a lot to pay for an e-reader. It’s as much as the newly announced 7-inch, 16 GB Kindle Fire HD.) Nook and Kobo don’t have ads, but the Kobo Glo is $129.99 and Nook with GlowLight is $139.

Overall, we saw today that e-readers can continue to improve even without adding more tablet-like features. The Kindle Paperwhite and Kobo Glo are still single-function devices (Kindle’s “experimental browser” aside), but they’re substantially better than what was on the market before. That suggests we shouldn’t rule e-readers out, or assume that tablets are going to subsume them.