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Don’t expect the majority of Kindle books to be priced at $9.99 for too much longer. In a report Friday, Bernstein Research Analysts Claudio Aspesi and Jeffrey Lindsay say that the average price of Kindle books will have to increase to improve the economics for both publishers and Amazon (NSDQ: AMZN). They write: “Should $9.99 become the universal price pint, publishers would ultimately be compelled to lower their list prices over time, which would significantly lower their margins. We think Amazon’s strategy, however, is to raise electronic book prices over time, while simultaneously influencing the book publishers to accommodate at least a partly electronic book model.” A suggested new price point that could “dramatically” increase margins for publishers and Amazon: $12.50.
The analysts argue that by raising the average price by $2.51, Amazon’s margins could increase from 6 percent to 20 percent on the sale of an e-book. That, they say, is “comparable to its physical book business” since Amazon would only have to sell 1.7 e-books to match the profits from the sale of a hardback, instead of 7:
Publishers, meanwhile, could see their operating margins increase to nearly 52 percent:
Currently, they’re at around 16 percent — and “as list prices decline, the margins can in fact turn negative very quickly”:
Of course, there’s the very real danger of a customer backlash. As the analysts write, “While anecdotal at this point, there is plenty of chatter about book companies failing to learn the lessons of the music industry. If confirmed, this mood does not bode well for the publishing industry.”