Wall Street Journal's Peter Kafka estimates Kindle ebook profit

It’s not much of a profit for Amazon on their $9.99 ebooks. See the full article here:

Picture 1.pngBernstein analysts Claudio Aspesi and Jeffrey Lindsay estimate that Jeff Bezos and company record an operating profit of 61 cents on each $9.99 e-book they sell. But a $24.95 hardcover generates $4.25 in operating profit. That’s a 7 to 1 ratio, and that can’t continue, indefinitely.
The good news: Aspesi and Lindsay argue that Bezos doesn’t have to raise his prices by that much to make his e-books much more profitable. Bumping up best-seller prices from $9.99 to $12.50 would boost his profits from 6 to 20 percent per book, they estimate. The flip side: Costs for the devices themselves will certainly go down.

6 Comments on Wall Street Journal's Peter Kafka estimates Kindle ebook profit

  1. Interesting. Everything else I’ve read indicated that Amazon was subsidizing the titles priced at $9.99 and was actually losing money on those sales.

    Good to hear they might be actually making some profit at that price point.

    That should enable them to keep subsidizing them for us for a long, long time :)

  2. yes, I have read the same thing from many different sources. I haven’t read the full article mentioned here, but in reality, how can ANYONE know of someone else’s profit margins without being privy to the actual “deals” that Amazon may/may not (depending on who you believe) be striking from the publishers on wholesale ebooks?

    Time magazine just the other day said Amazon was taking a loss on the 9.99 best sellers. I, for one, am going to enjoy it while it lasts! :-)

  3. Loss leaders are not exactly an unheard of marketing strategy.

    “how can ANYONE know of someone else’s profit margins without being privy to the actual “deals” that Amazon may/may not (depending on who you believe) be striking from the publishers on wholesale ebooks?”

    This doesn’t apply to NYT bestsellers (I presume), but one author I know says Amazon takes a 65% commission for selling his books through the Kindle Store. If I assume that to be 65% of the Digital List Price, then for his book that would be $3.90 for his $6 DLP book. $1.20 off at the Kindle store leaves $2.70 for Amazon. Now if we compare with that same book in paperback (there is no hardback for this one) and assume the usual 50% commission for his $11.99 book, that’s $6, minus $2.40 for the Amazon sale price, puts us at $3.60 before we factor in any costs such as warehousing and shipping.

    If the difference in cost to Amazon between a physical and an ebook was only $0.90, then they would be equally profitable here. I’m guessing however that a physical books cost more to deal with than that.

  4. “… one author I know says Amazon takes a 65% commission for selling his books through the Kindle Store.”

    These are the terms Amazon offers authors who upload their text through Amazon’s site at dtp.amazon.com

    The terms being offered to large publishers aren’t public information.

  5. Be very interested in seeing this report and the basis for the 61 cents estimate. Perhaps big publishers have some overall economic deal with Amazon that provides volume discounts or rebates that ultimately reduce the total royalties Amazon pays? I don’t know. But this is also further confirmation of my recent fear that Amazon is gearing up to (or already in the process of) greatly reducing the number of $9.99 books. The old slowly boiled frog trick.

  6. At this stage, the point of pricing bestsellers on the Kindle at 9.99 doesn’t seem to be profits but strategy. Amazon is trying to build a significant market share for the device it produces and the file format it owns. They might be paying publisher-set list prices now, but they will start to force publishers to lower those when they have established a strong-enough stranglehold on the industry. They already “own” the customers that have bought a Kindle and thus have locked all their books into the device. Losing your account means loosing your library. As much as anyone might enjoy subsidized ebooks from Amazon now they will regret when the firm succeeds with this strategy.

The TeleRead community values your civil and thoughtful comments. We use a cache, so expect a delay. Problems? E-mail newteleread@gmail.com.

wordpress analytics