One of the main reasons I like buying e-books for my Kindle instead of physical ones is the price advantage. Yes, portability is nice, and I don’t have to line my apartment walls with bookshelves just to hold everything, but I still do value the book as an artifact, so pricing is really the major attraction. Apple’s (s aapl) $12.99 to $14.99 price range for the iBookstore has begun to erode that primary advantage.
Luckily, according to a new report by the New York Times (s nyt), Apple’s higher prices aren’t necessarily a permanent thing. Instead, sources at the publishing houses who’ve made agreements with Apple suggest that built-in discounting provisions will result in book prices dropping as low as Amazon’s (s amzn) fast disappearing $9.99 price point.
Under the agency model Apple uses, it will take 30 percent of each e-book sale made, while the publisher gets 70 percent of the take to distribute between itself, the author and other involved in the making of the book. The agency model along with a complicated formula related to the price of print books led publishers to suggest that price points for new fiction and non-fiction releases would fall somewhere between $12.99 and $14.99. Publishers then took that higher price point back to Amazon and essentially insisted that the online bookseller institute a similar model.
Under Amazon’s model, the Kindle maker actually lost money on every e-book, counting instead on revenue from hardware and on building market share to turn a profit. The New York Times describes how this worked:
Amazon has effectively lost money on each sale at that price because it buys and resells e-books as it purchases printed books, by paying publishers a wholesale price generally equivalent to half the list price of a print edition. That means that on a $26 hardcover book, Amazon would typically pay the publisher $13, losing just over $3 on a digital edition it sells for $9.99.
The NYT’s sources, three people involved in the discussions between the publishing houses and Apple, note that even though books will indeed be sold at a higher initial price through the iBookstore, Cupertino built provisions into the agreement that would allow them to discount the prices of hot selling e-books, including those found on the NYT’s bestseller list. Apple wants the ability to undercut or match competitors’ prices for these books, which are often offered at significant discounts in other sales venues.
A book that becomes a bestseller could then see a price drop from say $12.99 to $10.99, or even as low as $9.99, according to the sources. Even books not on the bestseller list would be eligible for this lower-than-normal pricing, since it will be tied to the going print rate for the book. The $12.99 to $14.99 number is based on a new hardcover selling price of $26, and Apple wanted the ability to offer more attractive prices for books that have a lower starting print price.
Apple has the right idea. The reason e-books are attractive to many is a combination of convenience and pricing. But the pricing advantage only exists if consumers aren’t willing to wait for paperback editions of the books they’re purchasing to come out. If they are, though, they can probably buy a physical book at around the same price or lower than its e-book counterpart.
If Apple and its publishing partners really want to make a splash in the e-book market, they have to extend their policy of ultra-competitive pricing to the paperback market, too. $9.99 is, for me, the exact price at which I will opt to buy an e-book over a paperback, even if I can find the print version for slightly cheaper, owing to the convenience factor. I suspect I’m not alone, as Amazon didn’t just pull the number out of a hat. If Apple can hit that sweet spot more often than not for books that have been around for awhile, I’ll gladly give them even more of my hard-earned cash.