February 10, 2010
E-Book Competition: Why iPad is Making E-Books More Expensive
Posted by Christine Hurt

So, I own a Kindle.  There aren't that many e-book formats around -- Sony has one, Barnes & Noble has one.  They all seem to have their own deals with different publishers, so access varies.  Now, iPad is going to be marketed as a multi-purpose format, including as an e-reader.  Surely, with more entrants into the field, the price per book should go down, right?  Shouldn't Steve Jobs have touted cheaper books in his big launch of the iPad?

Except he didn't.  In fact, he announced that books on the iPad would be more expensive -- $12.99 to $14.99 instead of the $9.99 Amazon standard for many Kindle books.  So now e-books are approaching the price of a paperback book, and I should be happy for the industry competition?  Shouldn't iPad be killed outright because no one would buy it to read books when books are more expensive on it?  Well, apparently the competition aspect is not for book readers, it's for book publishers.  Now, Apple is saying to publishers that they will sell their books for more money on the iPad, in effect saying that they will pay more for their e-books than Amazon is.  So, in turn, Amazon is conceding and agreeing to the same terms for certain publishers.  So now my $9.99 Kindle book will be $3-5 dollars more.  Viva la competicion!

So now publishers have the power, if for a moment.  Apple and five major publishers have set terms that allow publishers to set their own book prices and keep 70% of the revenue from sales, with Apple keeping 30% as an agent fee.  (Random House has not agreed on any terms with Apple at this time.)  One of these contracting publishers, Macmillan, held Amazon's feet to the fire last week for identical terms.  At first, Amazon played hardball and removed the "buy" button from all MacMillan print products and deleted the Kindle products.  After a week of playing chicken,the parties agreed to the "Apple" plan.  Interestingly, publishers aren't losing money on the Amazon plan, which Amazon subsidizes as a "loss leader" to sell Kindles.  But publishers were worried how far Amazon would go and are willing to accept less profit now to set prices in the future.  Publishers have their own ulterior motives, as well, as very low e-book prices cannibalize the hardback market.  In any event, More publishers may follow suit with Amazon.  And now, publishers have the upper hand in discussions with Google over its proposed e-book format, which has no accompanying hardware.

Now, Apple's buying power may not last forever.  When someone buys a Kindle, Amazon knows that they will buy book content.  However, the iPad may be popular among people who want to watch movies, surf the web, check email, play video games, read newspapers, etc., but not read new best-sellers.  If that's the case, then Amazon and Google may be able to renegotiate.  In addition, we e-readers may decide to just buy paperbacks instead of $15 digital versions.

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