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Summary:

Despite Amazon’s knee-jerk banishment and reinstatement of its books following a price increase of its books, publisher Macmillan isn’t the only one looking to introduce a new, more lucrative pricing structure. HarperCollins is also eager for renegotiation, and now, Hachette Book Group has also joined the […]

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Despite Amazon’s knee-jerk banishment and reinstatement of its books following a price increase of its books, publisher Macmillan isn’t the only one looking to introduce a new, more lucrative pricing structure. HarperCollins is also eager for renegotiation, and now, Hachette Book Group has also joined the growing contingent of those looking to charge more for their electronic wares.

This is what’s called the new “agency model” of pricing, which allows the company serving the content to take a cut. Apple’s own system calls for a 30 percent take of the revenue on all apps (and now books) sold through its online store. Amazon recently introduced a similar pricing structure for certain books and apps. It looks like major publishers are unwilling to absorb the cost of the seller’s cut, preferring instead to pass it along to consumers.

Hachette CEO David Young, however, in a letter sent out detailing the new pricing plans, claims that book publishers will not make more money using the agency model, claiming the opposite, in fact:

[W]e make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale. We’re willing to accept lower return for e-book sales as we control the value of our product–books, and content in general. We’re taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace.

Call me skeptical, but I can’t help but feel that these publishers are acting more out of self-interest than anything else. It may be true that they actually make less on every book sold using the agency model for electronic distribution, but it’s probably also true that the books cost much less for them to create than print versions, too. I’d be willing to bet that they end up profiting more on a per copy sold basis in the end. Hachette makes other claims in his letter about how the deal is actually beneficial to consumers, despite the upfront price hike:

There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors’ works. In the long run this will enable Hachette to continue to invest in and nurture authors’ careers–from major blockbusters to new voices. Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer.

It’s good spin, but it’s spin nonetheless. The bottom line, no matter how Hachette, Macmillan, or HarperCollins try to spin it, is that rather than introducing competition that will result in lower prices for book-buying customers, Apple’s iPad has in fact spelled the end of the $9.99 bestseller, for both Kindle and iPad users. Apple had to offer publishers an incentive to come over to its side, but the cost of that bargain is unfortunately one we as the buying public will be paying for.

At least in the short term. A longer view reveals a different picture. Apple needed to gain access to the ebook market, and so was willing to make concessions regarding price. Publishers jumped at the chance to get out from under the tyranny of what amounted to Amazon’s ability to set prices unilaterally. But is it a case of “out of the frying pay, into the fire?”

If Apple’s power play succeeds, Amazon could conceivably be forced to close up shop (though I still don’t think I’ll ever stop reading on my Kindle in favor of the iPad). If and when that happens, Apple will occupy the spot that Amazon once did, and will be able to dictate prices to publishers, much like they did and still continue to do with record labels. It’s a rare case where a monopoly could actually benefit the buying public, but only if you’re willing to pay more than paperback prices in the meantime. I’m not sure I’m willing to do that.

Related GigaOM Pro Research: Evolution of the e-Book Market

  1. Apple’s insistence on controlling content may eventually drive me off the platform. I was OK with iTunes for music as it represented a good rate for the product and a good interface. Apple however is continuing to attempt to get a stranglehold on both hardware and content and that makes me uneasy. Why not let the Palm Pre sync to iTunes, I own the music don’t i?

    Apple TV, iPhone, now iPad, all restricting the path and thus competition on how I get my content.

    Google is looking more and more attractive in the future, and Apple is reminding me more and more of Microsoft.

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    1. @pete

      Palm keep spoofing Apple device ID, instead of using the official API, that’s the problem. Keep in mind that other phone makers made their own software that works with iTunes, therefore Apple isn’t trying to control your content. Better luck FUDing next time.

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  2. Apple is not the problem are the publishers.

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  3. Another Blog Uses iPad as Pretext for Fact-free Speculation.

    I’d love to read an article which breaks down the actual production costs of paper books, audio books, e-books, etc, rather than assuming that e-books “must” be significantly cheaper to produce than paperbacks.

    Anyone? Anyone?

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    1. So your thinking would lead us all to believe if a publisher sells 100,000 paperback books, their costs for all that paper, ink and production time, shipping and labor will be no different for them to drop a file on a server that 100,000 people buy and download?

      So for the real book we would have: Paper, Ink, Glue, electricity to run the press and binding machines. People to actually run the machine. More paper in the form of boxes to ship these books, expense to ship them, gas, labor to drive them or fly them to stores.

      ebooks: the people that convert it to electronic format. electricity to run the server it resides on. Bandwidth for downloading it to the consumer.

      What am I missing? common sense tells me ebooks are cheaper than the real thing. I don’t need some scientific study.

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    2. A book is so much more than a stack of wood pulp. Just think about the paper required for a 300-page novel — paper’s already pretty cheap, but most novels are printed on gray, rough stuff, which must be cheaper than the stuff we tend to buy. Bulk purchasing on the scale of major publishers drives the costs down even more. The $15 500-page paperback I have sitting next to my computer probably costs less than $1 in physical components, leaving $14 for other things. For what? For what distinguishes a stack of wood pulp from what we call a “book.”

      The things that distinguish it *as* a book include, most significantly, the employment of a team of editors, designers, and producers — not to mention authors — who help to keep books worth reading. Printed books have costs much higher than paper. An ebook is still a book, and it still has costs (and value) worth more than the darkening of a pixel on your Kindle.

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    3. P.S. I really like the following blog post by a new author, who explains some of the behind-the-scenes work, dispelling some ideas of “fat cat” publishers:
      http://www.nicolepeeler.com/2010/01/on-piracy/

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  4. You’ve got to bear in mind also what happened with the app economy – it showed that apps weren’t necessarily overpriced.

    The higher prices are at the whim of the publishers – they’ll get direct feedback by sales numbers on whether their price is too high. (There will also be breakdowns as to what a hard back vs soft back vs eBook costs no doubt).

    As soon as some publishers/authors throw some lower priced books that head up the Top 10-top 50 their will be a rethinking of whether they can gauge the consumer.

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  5. To me, the real issue is with the publishers, that are stuck with a fixed price with Amazon and they have forced Apple to change the structure, so they can control the retail prices.
    Actually, this change will generate more revenue to Amazon, but will not be able to control the selling prices.
    In the short term, the publishers are giving away to Amazon and Apple a bigger stake but will keep the retail price so they can control it.

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  6. Sadly it looks like we’ll be entering in to another age of Napster type piracy until the publishers and Apple come to there senses. Welcome to BitTorrent have a free book.

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    1. Sounds like you forgot that Apple Saved the music industry from Napster type piracy.

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    2. Apple made music affordable so there is no need to steal it.

      I know a lot of friends at Sony Music that lost their six figure jobs due to the new price structure of digital music. But they had the chance for many years to lower the 16-22 dollar prices on the cd albums.

      They now sell more digital single tracks to make up for album sales.

      The fact that you can buy one song now, rather than having to buy the whole album, changed the industry marketing forever.

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  7. @GS: “common sense tells me ebooks are cheaper than the real thing. I don’t need some scientific study”

    Er…that’s why we do scientific studies: because common sense often tells us things that aren’t actually true (or even the opposite of what is true!).

    @jmc: “The $15 500-page paperback I have sitting next to my computer probably costs less than $1 in physical components”.

    I wouldn’t be surprised if that was the case: I remember similar economies of scale applying to the production of CDs.

    Thank you for the interesting link. I found this article too (scroll down to “how books are made”):

    http://www.tobiasbuckell.com/2010/01/31/why-my-books-are-no-longer-for-sale-via-amazon/

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    1. I’m in the publishing industry.

      The biggest savings to the publisher is not having to store a huge inventory anymore. That is where we lose money! You have to guess correctly as to what will sell and order accordingly. That is a HUGE savings not having books that are not selling filling a warehouse! No more close out sales and publisher shreddings with regular books.

      In my business it is all print-on-demand now. Retailers place a direct order and no longer have it shipped from a warehouse. Keeps editions, corrections, and printings up-to-date.

      Also, you are ALL forgetting. Currently there is NO sales taxes on digital items sold over the web. Really helps with our sales and profit margins. I sure hope that does not change!

      It is a win, win, win for publishers. However, they don’t want to lower their prices down to where they should be. 6-12 dollars for a digital book is still WAY to high. Their profit margins are actually higher at these prices over paper hardbacks two or three times the price. They can still make a ton of money at half that 6-12 dollar cost! Digital files are meant to be thrown away after they are read, unlike real books. The price should reflex this!

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  8. @obamapacman, You missed the point. Apple is controlling the machine to content layer. iTunes only work with iPod/iPhone.

    As a consumer I own the content and I choose to use iTunes and an iPhone. If I want to leave the iPhone, I have to find not only another phone, but a new way to control my media. I don’t want to have to do that, but hey maybe you do.

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    1. As I’ve said, data within iTunes is not locked. You can export playlist as XML. Other apps can also access the iTunes data to sync to non-apple devices. So your assumption that iTunes is a detriment is completely wrong.

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  9. i’m sure the publishers are acting in their own interest. isn’t that capitalism?

    just like Amazon is acting in it’s own interest. they can act the bully when they feel it’s necessary.

    $9.99 ebooks are a marketing ploy on Amazon’s part. and from what i understand not all Amazon ebooks are $9.99.

    start with the fact that everyone is acting from their own interest: the publishers, Amazon, Apple. any other thought is naive.

    i don’t see any authors bemoaning the loss of $9.99 ebooks. and after all it’s their creative work that’s at issue here.

    imho,
    monroe stahr

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    1. Yup.

      Amazon’s behavior of trying to flood the market with below-cost-products is called “predatory pricing.” Not only does it impact the author’s bottom line, It could actually be illegal.

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  10. Hey – I see this as sheer dumb! We are coming to a point where gasoline will be more than 10 dollars per gallon, a loaf for bread at least that much. They will start burning books just for heat. Really “People” get your act together. Not to mention the internet will cost a lot more than it does now. Cap and Trade will kill this nation as our President and Congress just smile. The new EPA is amount to change the very fabric we live by. E-books will not matter, when you are hungry.

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  11. I don’t understand the last paragraph: how in the long run this monopoly might benefit consumers? Could you explain further (really, not being sarcastic)?

    Amazon e-books definitely are not all $9.99; as an avid Kindle reader I can say that some are more (usually trade books, like computer programming manuals, but not always) and some are less, and some are even free.

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  12. Apple is a company and that company sell products. The products are hardware for work and content. If you don’t like the products don’t buy them. If I create a device for sell and play content I wouldn’t like the opinions of some people trying to control how I will sell my content and Where I let playing them. PLEASE! go and buy other device and stop all of this already. You are the ones thats going o be buying the iPad anyway.

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  13. Apple made music affordable? By offering songs for $1? That seems cheap but is actually more expensive than a real CD from the store AND you get worse music quality. This will be the same for ebooks. You pay more and you get less.

    Besides, I can’t for the life of me figure out who would want to read a book from an iPad screen. (or a kindle screen for that matter).

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    1. This seems kind of obvious but the vast majority of people would rather buy the 2 or 3 songs from an album that they like than spend $15 on an album to listen to 2 or 3 songs. And the quality of an mp3 is just fine for most of us. So for most people Apple has made (legal) music more affordable.

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  14. To make things easy for you, Henk – I would. I don’t get much free time to read any more and when I do, it’s typically when I’m travelling. I have a bunch of paperbacks cluttering up shelves bought on previous trips, read once and now just gathering dust. Sure, I could sell them on if I organised myself, but I much prefer the idea of having a device I can download e-books onto and read at my convenience. I wouldn’t buy a Kindle as I don’t read enough to justify the cost, but I may well plump for a 2nd-gen iPad, given the other functionality it offers.

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  15. [...] Jade and No one has commented While Apple has yet to sell a single iPad, the device has already challenged the domination of Amazon and the Kindle for e-books, and now periodical and newspapers are experiencing this [...]

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  16. [...] Apple has yet to sell a single iPad, the device has already challenged the domination of Amazon and the Kindle for e-books, and now periodical and newspapers are experiencing this [...]

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  17. [...] Apple has yet to sell a single iPad, the device has already challenged the domination of Amazon and the Kindle for e-books, and now periodical and newspapers are experiencing this [...]

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  18. [...] Apple has yet to sell a single iPad, the device has already challenged the domination of Amazon and the Kindle for e-books, and now periodical and newspapers are experiencing this [...]

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