While most of the events and companies (and writers) driving change are American, and while the US is far ahead in terms of e-reader adoption rates and e-book sales, the book business is a global trade (which some estimate at $90bn per year), of which America is but one, albeit significant, market.
As the situation is less developed than in the US, there is less hard data and quality analysis, so forgive me if this is a little spotty. If anyone has better sources, information to add, or corrections to make, please make a note in the comments.
The European version of sales tax is known as VAT and (in the EU at least) it is levied on the sale of all e-books (and at far higher rates than print books). Each country has different VAT rates, but the rate that is applicable is that of the country of the retailer.
Amazon, for example, is headquartered in Luxembourg for tax purposes, which also happens to have the lowest VAT rates. As such, all Amazon sales to EU customers will attract the Luxembourg rate, which is 15%.
Unlike the US, under EU law, the price displayed to the customer must be inclusive of sales tax, so all prices EU customers will see on Amazon will be inclusive of VAT.
Self-publishers should keep this in mind when setting their prices in the French, German, and UK Kindle Stores as Amazon will add the VAT to the price you set.
For example, the minimum price you can set in France and Germany is EUR 0.86. With VAT, this brings it up to EUR 0.99 (about $1.35). For the 70% royalty rate, the minimum qualifying price you can set is EUR 2.60. VAT will bring this up to EUR 2.99 (about $4).
In all cases, you will receive royalties based on the price you set (i.e. EUR 2.60), you do not get a chunk of the gross price which includes VAT (i.e. EUR 2.99).
In practice, this means that readers pay slightly higher prices for self-published work, but your royalties per sale will be higher too.
The situation is similar for the UK, but very different elsewhere.
Customers outside of the UK, France & Germany
While the UK Kindle Store doesn’t serve additional countries, the German Kindle Store serves several others: Switzerland, Austria, Luxembourg, and Liechtenstein; and the French Kindle Store serves Belgium and Monaco as well. Self-publishers will receive a 70% royalty rate on all qualifying sales to these customers.
All other European customers (e.g. Italy, Spain, the Netherlands, Ireland etc.) are redirected to the US Kindle Store where VAT is automatically levied at 15%.
Delivery costs and import duties for e-readers are significant. For example, the cheapest Kindle a customer outside of countries served by the UK, French or German Kindle Stores works out to around $170.
But these customers also face additional charges when it comes to buying e-books. For all countries not served by a European Kindle Store (with the strange exception of Ireland), Amazon apply a $2 surcharge to most e-books.
This is applied before VAT is calculated, so the real cost to the customer is an additional $2.30 on most purchases. It should also be noted that it’s even applied to free e-books.
Needless to say, none of this money is passed on to authors or publishers. In addition, Amazon only pay a 35% royalty on all customers in the surcharge zone (plus Ireland).
What this means, in effect, is that if your book is retailing for $2.99, a customer in, for example, Sweden, will see a price of $5.74. Of that retail price, you receive $1.05, VAT is responsible for $0.74, and Amazon pocket a whopping $3.95.
This bizarre (and unfair) policy is changing. The surcharge was removed in Ireland last year. And when Kindle Stores opened in the UK, France & Germany, the surcharge was abolished along with it. Some European customers, however, may be waiting some time to get equal treatment from Amazon.
Every time I mention this surcharge, I get some push-back from people who claim it is down to higher operating costs, taxes, or some other such nonsense. If that’s your view, I suggest you read the link above, where it is all explained in great detail.
European markets are behind the US for a lot of reasons. One huge factor is the relatively higher price of e-readers.
Even in countries served by an official Kindle Store, there are no ad-supported models, and the prices work out to around $140 for the cheapest device (partly because of VAT), and about $30 more again outside of those countries.
In addition, the touch devices aren’t available at all, and neither is the Kindle Fire. European customers can only purchase the old keyboard model or the new entry-level device, whether they are served by a local Kindle Store or not.
The result of this is a paucity of e-readers on view in Europe. Outside of the UK, and to a certain extent Germany, seeing a dedicated e-reader is a rare sight.
Stockholm (where I am living) is an affluent city with very high advanced literacy levels, whose citizens love their gadgets. I see iPads and iPhones everywhere, but have only spotted one Kindle in the last 12 months (and that was in the possession of a Dutch ex-pat who had purchased it while living in the UK).
I hear similar reports from friends in cities across Europe – with London being the obvious exception.
But, as Amazon knows, it’s content that sells devices and, in Europe, it’s not cheap.
E-books are very expensive in Europe which limits the attraction of switching to digital. Countries not served by a local Kindle Store are worst affected: no access to free e-books on Amazon (they cost $2.30 a pop), and far higher prices for “paid” books because of the surcharge mentioned above.
This means that 99c books cost these customers $3.44, titles priced at $2.99 work out as $5.74, and $4.99 e-books become $8.04. Not such a bargain anymore.
With trade published e-books, prices are higher again. The larger European publishers are pursuing (by-and-large) identical policies to their American brethren, keeping e-book prices high to slow the digital changeover, thus protecting their effective monopoly of print.
For readers, this means astronomical e-book prices for their favorite writers. EUR 20 (or more) for a new e-book release from a popular writer is common (that’s about $27). Needless to say, the paper version is often cheaper.
In most major European markets book prices are fixed by publishers, and retailers such as Amazon are prevented from discounting past a certain limited percentage. In some cases, like in Germany, this is backed by a trade agreement, but in many cases, like in France and Spain, it’s actually enshrined in law.
The UK had a trade agreement to that effect, but it was ruled illegal in 1997 and abandoned. This has seen book prices plummet there as Amazon and powerful chain supermarkets like Tesco are free to discount as they please on print titles.
However, the major publishers in the UK are parties to the same Agency Agreement as the US which has led to a huge price difference between e-books from the larger publishers, and those from smaller publishers and self-publishers.
The astounding success of indie writers such as Saffina Deforges and Mark Edwards & Louise Voss indicate that there will be huge opportunities for self-publishers in these new markets when the pricing differential becomes apparent to readers.
As for the rest of Europe, the EU is investigating price-fixing, has raided the offices of several European publishers, and there is the possibility that the laws preventing discounting by Amazon (and the other retailers) will be struck down by the courts.
Amazon has been relatively cautious in its approach to Europe, only moving into a market once the content is in place. Now that deals have been struck to sell digital titles from the major publishers in Spain and Italy, we can expect to see Kindle Stores opening there soon (and indeed hiring for both has been underway for some time).
There is no doubt that opening a Kindle Store in any country will really drive the market. It reduces the prices of e-readers significantly, as well as the e-books themselves. It also acts a spur to the local self-publishing scene – as writers in the various countries will be eligible for the 70% royalty rate for sales to their countrymen for the first time (which can make self-publishing altogether more viable).
Some commentators argue that print books are more cherished artifacts in Europe (especially France and Germany) and that e-books aren’t as attractive as a result. I remember the same sentiments being expressed in the US and the UK, and it proved no impediment there.
In any event, to encourage skeptical customers, a reader (thanks, Stefan) has pointed out that Amazon are offering a 30-day refund on Kindles purchased from the new French store (a policy he believes was in place at the launch of the German store).
Despite all of the above drawbacks, the digital market in Europe is growing fast. The UK is by far the most advanced and about a year behind the US, followed by Germany and France about 6-12 months behind the UK, and then it’s a toss-up between the relatively small markets in Spain, Italy, the Netherlands and elsewhere.
But even in countries like the Czech Republic, with significant lower wages (and thus even more expensive e-readers in relative terms), some difficulties with internet infrastructure, and a very limited selection of local language e-books, retailers estimate the market at only five years behind the US.
In short, Europe’s future is digital, despite the best efforts of some local players. But not everyone is trying to slow growth, and some publishers and retailers are open to new ideas.
At least one company at the Frankfurt Book Fair will be offering e-books as gift cards (an idea, you may remember, that was being promoted by Dean Wesley Smith). The British book chain Waterstone’s are developing their own e-reader, and a German chain has just launched a device, retailing for around $80 (thanks again, Stefan).
On top of that some publishers are experimenting with bundling content. Bantam are offering the first four e-books of George RR Martin’s fantasy epic A Song of Ice and Fire for the collective price of around $22 in the French Kindle Store.
The fifth book is around the same price, and the publisher is obviously hoping the reader will be hooked at that point. And the strategy appears to be working, with both offerings currently in the Top 50.
It seems that French readers are no different to anyone else, and they will respond to perceived value. Opportunities for entrepreneurial self-publishers await.