The book business in 2011 is a complicated world, and there’s no single proposition that explains Kindle Store pricing. Big Six publishers and indie authors are going to opposite extremes, and our latest analysis of Kindle pricing shows a tale of two very different pricing strategies. 

At the lower end of the pricing spectrum, the number of Kindle titles priced below $3 has grown by a very substantial 4.5% in the past 10 weeks, led by a doubling of both free contemporary tiles and free public domain titles. There are now over 253,000 books in the Kindle Store that are priced between 0 and $2.99, inclusive, for over a quarter of the overall selection, and these titles — the vast majority of them by indie authors publishing directly on the Kindle platform without traditional intermediaries — hold 37 of the top 100 spots on the Kindle Store paid bestseller list.

At the other end of the spectrum, the Big Six agency model publishers seem to be learning the hard way that most of their offerings will fail to thrive at prices over $9.99. The overall proportion of Kindle books priced at $10 and up continues to fall, with a steep decline of 5.33% between March 7 and May 17. However, at the same time, these same big publishers and their highest selling elite authors may be cheered by the fact that they seem to have gained a countervailing foothold with 35 books priced at $10 or more in the same Top 100 Kindle bestsellers list. 

The question that will eventually by answered — perhaps by the number of headstones in the publishers’ cemetery or by the number of authors who jump the publishers’ sinking ships for the world of direct publishing — is how quickly these publishers are losing overall marketshare due to their insistence on what are, for the vast majority of ebooks, unsustainable prices.

Perhaps most importantly, Amazon’s own pricing strategy is very clearly tilted toward offering many quality titles from its own relatively new and expanding group of publishing imprints in the price range from $1.99 to $4.99. Since Amazon knows more about its customers’ behavior on pricing matters than anyone in the world, it is clear that Amazon doesn’t think that the Big Six are hitting the sweet spot when they price books at $12.99 to $14.99.

As Kindle owners who have been known to buy and read vast quantities of ebooks, we pay attention to price. We’re savvy consumers, and when we decide that we want to read something it’s a very natural process for us to look at how its price compares both to the actual prices of other ebooks and to our theories about what we believe prices should be, and to make a purchasing decision accordingly.

So, in order to help keep our readers well informed, every few months here at Kindle Nation we conduct an analysis of Kindle ebook prices and share the results. We look both at the actual prices of all ebooks in the Kindle Store and also at the prices of the ebooks that populate the list of the Top 100 Paid Bestsellers in the Kindle Store. Our most recent survey took place on the evening of Tuesday, May 17, which allowed us to compare Kindle prices that we found in our last survey about 10 weeks ago on March 7.

Beyond the headlines above, here are the questions we always try to answer with these price breakdown posts, and here’s what we found:

Q1. What’s the overall size of the Kindle catalog and how does it compare with that of other ebook retailers?

A1. The overall count of Kindle books has been continued to grow by about 1,000 books a day over the past 10 weeks and currently stands at about 989,000, up from just above 898,000 titles on March 7. Since that figure includes only about 36,300 public domain books, that means there’s no other ebook retailer that comes close to that count for commercially offered ebooks. Barnes and Noble inflates its Nook count with over a million public domain titles, and Apple is rumored to be preparing a TV commercial with a voice-over that says “If you don’t have an iPad, then you don’t have access to the world’s smallest ebook catalog, with fewer than 150,000 commercial titles.”

Q2. How successful has Amazon been in herding prices into its preferred corral between $2.99 and $9.99, inclusive?

A2. The number of titles priced in this range is at 66.01 percent, so that it has actually fallen slightly in the past 10 weeks, from 66.13%.  But the percentage of books at $2.99 is up 17% during this period, so in keeping with the headlines above, there’s a somewhat more marked decline in the percentage of titles priced from $3 to $9.99, an entire percentage point (about 10,000 books in raw numbers) from 61.06% to 60.04%. 

As a percentage of the overall catalog, titles in the $2.99-$9.99 range are up 3.25% since we checked in December, while there are proportionally 10.2% fewer titles priced under $2.99 and 1.5% fewer titles priced at $10 and up. The growth of titles in the $2.99-$9.99 range has been supported both by the fact that Kindle pays indie authors who conform to this pricing range almost twice the royalty rate that is otherwise available to them and by the frequently stated resistance of many Kindle customers to prices above $9.99. Again, the largest area of growth has been for titles priced at exactly $2.99. After growing from 18,804 to 29,042 between September 5 and December 2, this group expanded to 45,528 in our latest look-in.

Q3. How successful have the big agency model publishers and their Black Knight, anti-reading crusader Steve Jobs, been in raising Kindle Store prices above $10?

A3. The Agency Model, if you’ve come a little late to this party, is a baldly anti-consumer price-fixing conspiracy (I wish I didn’t have to use that word, but sometimes a conspiracy is just that, a conspiracy) that was hatched at the beginning of 2010 by some combination of Steve Jobs and executives of five of the Big Six publishers, with Random House abstaining at first and finally going over to the dark side in February of this year. The stated goal was to mandate retail prices for Kindle books, and all other ebooks under the agency model publishers’ control, at levels that would be 30 to 50 percent higher than the $9.99 price that Amazon had previously set for Kindle Store new releases. The more important obvious but unstated goal was to slow the migration of readers from print books to ebooks. (Retailers had always had the freedom to discount as they saw fit from the publishers’ suggested retail prices in the past, and Amazon had in fact been selling many Kindle titles as loss leaders.) Since the Agency Model went into effect on April Fool’s Day 2010, the percentage of the Kindle Store catalog priced in agency-model heaven at $10 and up has fallen from 21.7% to 19.2% on May 22, 18.8% on June 14, 18.1% on July 18, 16% on September 5, 15.3% on December 2, 15.04% March 7, and 14.3% this week. 

How’s that goal of slowing the migration to ebooks working out for publishers? Amazon announced this week that its Kindle ebook sales had tripled over 2010 levels and had surpassed its print sales, despite the fact that Amazon’s own print sales continue to grow. How long will publishers continue to posture as if they have an adversarial relationship with a company that is marching inexorably toward having a 50 percent market share for all books sold in all formats in the United States by the end of 2012?

Q4. Has there been a significant change in the title count for Kindle books priced under $2.99 since Amazon began paying a 70 percent royalty for books in the $2.99 to $9.99 range?

A4. The proportional representation of Kindle books at every price point under $2.99 (free, 99 cents, under 99 cents, and $1.00 to $2.98) fell  dramatically from December to March, but in the past 10 months the percentage of titles at these price points as indie authors have discovered that pricing books at these levels can, in many cases, create so much attention that it more than makes up for the far lower royalties.

Q5. Overall, are ebook prices going up or down or staying about the same?

A5. Lower prices are clearly winning, for all the reasons described above.

Q6. Are there changes in the price composition of the Kindle Store’s key bestseller list, the Top 100 Paid Books?

A6. With the launch of the $114 Kindeal (the special offers Kindle) that has recently become Amazon’s #1 bestselling product with, probably, over a million units shipped to date, we’re seeing a bit of the usual post-Christmas phenomenon for the Kindle Store, with a swell of new Kindle owners rushing to fill their Kindles with the books they want. This tends to stimulate sales and downloads at both ends of the pricing spectrum, with bestseller-driven customers buying big name books and savvy consumers snatching up the best deals — and there’s nothing to say that these are not the same customers at both ends of the spectrum. The natural consequence of this surge is that the number of Top 100 bestselling titles in the middle, priced over $3 but under $10, has fallen from 40 to 33 since March 7, while the number of titles in the other categories has risen from 30 each to 32 and 35. 

One interesting phenomenon that I couldn’t help but notice is that readers already seem to have gone lukewarm on the Kindle wunderkind of late 2010 and early 2011, former indie author turned newly signed St. Martin’s Press property Amanda Hocking. Just a few months ago she had half a dozen of the top 30 titles in the Kindle Store at prices ranging from 99 cents to $2.99, but Kindle readers seem to be anticipating the likelihood that her forthcoming ebooks will have to be priced in the $9 to $15 range to please the St. Martin’s bean counters. They have kicked Hocking to the curb for John Locke and a group of Top 100 bestselling indie authors who just happen to be Kindle Nation faves and past sponsors, including Julie Ortolon, Scott Nicholson, David Lender, Elisa Lorello, Anna Mara, and Michael Wallace. Hocking’s still holding onto Top 100 status, with two titles in the 80s and 90s.

Q7. Are there any noteworthy trends with respect to free books in the Kindle Store?

A7. Don’t look now, but the number of Kindle freebies are surging. Both public domain titles and free contemporary titles have doubled, and Amazon has finally cracked open the door to allow indie authors to offer their titles free … even if it is not the front door.