Will publishers kill Amazon's golden goose?

Sarah Tew/CNET

COMMENTARY Amazon (AMNZ), which usually doesn't get too specific about details of its sales, apparently felt the need to crow about the Kindle. The company claims to have sold 1 million a week for the past three weeks.

It's hot news, fueled in no small part by the Kindle Fire tablet. But while Amazon congratulates itself and tries to intimidate would-be competitors, publishers are potentially pouring cold water on the retailer's ardor. E-book prices are rising, according to a Wall Street Journal report. And that could come back to hurt Amazon, as well as Barnes & Noble (BKS), as the interplay of e-book and e-reader prices could start to make the devices far less desirable for consumers.

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A rising tide lifts all prices

In general, e-books have been selling at an increasingly fast pace. Market research firm Yankee Group expects e-book sales to be 9 times higher by 2013 versus what they were in 2009. The firm also forecasts the average e-book price to drop to $7 in 2013 from $9 over the same time span.

However, there's been a move in the opposite price direction on the part of the big publishers. Prices on mainstream e-books have approached those of printed books, dropping to only a little less that their paper counterparts, the Journal reports:

Laura Hillenbrand's nonfiction adventure tale "Unbroken" sells for $12.99 in digital form but $13.98 in hardcover on Amazon. Walter Isaacson's best-selling biography of Steve Jobs retails for $14.99 in e-book version, compared with the $17.49 hardcover available at Amazon and online at Wal-Mart Stores Inc.

To the publisher, that isn't unreasonable. The big costs in book publishing are writing, editing, production and marketing. Printing and warehousing typically represent between $1 to $2.50 per copy of book. From a publisher's view, e-books should be nearly the same price of paper copies.

Apple changed the dynamic

As it often does, Apple (AAPL) helped change the way the market works by getting publishers to adopt the so-called agency pricing model, where the publisher would set the price of e-books and the retailer would take a percentage. Apple thought that this would keep it from having to slug it out in the discount world of Amazon.

But in this case, the result was to let the big publishers push prices up to where they come close to those of paper copies (or, in a few cases, even exceed paper prices). As The Wall Street Journal points out, it's ironic when publishers make less money per copy than they did by charging wholesale prices that are actually discounts off list prices.

The reason publishers did this was to knowingly take a short-term hit in profitability in order to better control the long-term pricing trends of books. Publishers were scared that Amazon could gain control of pricing and then continue to drive e-book prices down, eventually paying less to publishers and more quickly undercutting paper book sales, which would be more profitable for the publishers.

Irresistible force meets unmovable object

But e-book and e-reader prices have a strong interaction. People may expect a digital file to cost less than a paper book, but they start to demand lower prices when they're potentially paying hundreds of dollars for a device. The higher the cost of the books, the less attractive the cost of the hardware seems.

The question is who gets hurt worse. According to the Journal, both Amazon and industry executives claim that growing e-book prices have slowed e-book market growth. That's bad news for Amazon. The company's move into not only e-readers but tablets with the Kindle Fire is still tied closely to Amazon's positioning as a media seller. So it's quite possible that Amazon -- and Barnes & Noble with its Nook tablet -- could see a drop in sales. But Apple's iPad wouldn't suffer, because consumers see it primarily as a tablet, not an e-reader.

[NURREDIN]

The book publishers are about to do to themselves what the major record labels did to themselves,refuse to enter the 21st century. You don't need a book publisher or a record label unless you want a hefty advance (which cones out of your royalties anyway).The only thing the labels and the publishers have over the creators is a massive P.R. machine.If your product is good enough' word of mouth on the web will promote it,and you can keep the profits for your self.The greed of the 1% is coming to an end.

[macabr]

I received a Kindle for Christmas and I have noticed the cost of the ebooks is higher since that day. Amazon is shooting themselves in the foot with the increased price. I began a blog 18 months ago after being in a discussion group with some mid-list authors who explained that publishing houses do not promote these authors. It is up to the authors to manage their own publicity. An absolute majority of authors make little money on book sales which is why so many are publishing electronic versions of their books. One advantage to an ereader is that it certainly saves space. I read three or four books a week. I have neither the money to buy them or the space to house them so the Kindle is appreciated.

Most of the books I read are from the library. I hope people don't forget that circulation determines a library's budget. Kindle's and ebooks require disposable income.

[obwon2008]

Wake up people! We people for the most part are still in a recession. For book publishers to raise ebook prices is another example of clueless, selfish disconnect. Their decision is based on stubborn greed and not reality. Stupid decisions by stupid people who are living on their past achievements and refusing to accept change. The horse is out of the barn and so sorry to all you know it all MR. BIGSHOT PUBLISHERS who think that the public will pay exhorbitant prices. There's plenty of good new books to read at fair prices and we don't need your price hikes which are going to be another nail in you horse and buggy coffin.

[HenryWoodDetectiveAgency]

Maybe their pricing will help struggling indie authors attract an audience? My book, Henry Wood Detective Agency, is at $2.99 and will stay there...until I'm a huge writing star and forget about my humble beginnings. :-)

[CGPowell]

I completely agree, there are now millions of indie writers who set their own prices, most of which fall in the $2.99 to free category. All it takes if for people to look for new books to read by price. I am a writer too, and refuse to price my book any higher than $2.99 for the e-book.

[moreResearch]

Better idea yet: why not be able to download e-books to your computer and bypass the e-reader altogether! Not everyone reads tiny screens in transit, you know. Some of us do research!

[FranklyJohn]

Who gets hurt the most by the greed of agency pricing??? Authors and consuming readers!!!

Amazon and B&N have created ebook publishing and distribution divisions paying up to 70% in royalties a month after downloads are sold. No major publisher can come close to 70% nor pay authors that promptly—waiting for returns from bookstores to settle out doesn't apply to ebooks. Authors of agency priced books suffer from a lower royalty percentage when the publisher takes a slice of the 35% profit from ebook sales. There is a growing consumer boycott imposed on ebooks priced greater than $9.99—except for non-fiction containing proprietary content.

The corporate marketing madmen have grossly underestimated the savvy and buying habits of ebook consumers—many waited for the mass market paperback, now they wait for the eventual drop in price of the ebook. No way are they going to buy at near hardcover prices. The traditional printed-book marketing formulas are failing to produce projections because the infrastructure is eroding away in the turmoil of changing tides.

The major houses strive to have a formulated number of bestsellers annually from their A-list authors, however, in recent years they've been missing their sales goal. Novels are competing with a multitude of easy access entertainment options. Ironically many of the successful first-book ebook authors collected stacks of rejections from publishers before the author decided to retain all rights and release an ebook.

Mergers and downsizing in publishing have flooded the job market with highly skilled professionals, most are available as freelancers to tweak and tune the author's ebook. Authors create and own the content, in the Digital Age content rules. Since authors own the content they get to establish the ebook price—and they don't need a greedy publisher.

Enjoy often... John

[gemini76mc]

One thing that this article doesn't address is the ability to read library eBooks and free eBooks. Kindle books can now be checked out via your local library for free. Check out your library's website to access them. Not to mention all the many, many free or very low cost books that are available for Kindle. Plus thousands upon thousands of classics are available for free, instantly. Pride and Prejudice, Plato, you name it. All taking up no bookshelf space in your house. I think it is a cool feature that Amazon can save all your notes and highlights on any Kindle library books you read, and if you check it out or buy it later, your notations will all still be there. Plus Kindle books can usually be read by at least 5 members of your house simultaneously. If you are waiting at the dentist and have a sudden hankering for some Jane Austen, you have all her books right there with you, ready to go. I've bought Kindle books for about 3 years now (and some Nook books as well - I read those on my iPad), I understand major publishers are trying to protect their book sales, but I think that the thing they are overlooking is that at lower prices they can sell many MORE COPIES of books, at NO additional cost to them. I know I've read (and bought) much, much more since getting a Kindle. It might take a while, but I suspect that they will come around eventually. This is all new, and definitely still being figured out. For now, if an eBook is priced too high, I either check it out at the library or just read something that is reasonably priced, instead!

[contraium]

I had planned on buying the Nook Tablet next year, already own the Nook Color. If book prices are raised I will not be buying the Nook Tablet. I will just move up to a 10" full Android tablet, not gonna be worried about ereading when the prices are that high. Way to kill a whole market segment greedos.

[contraium]

I had planned on buying the Nook Tablet next year, already own the Nook Color. If book prices are raised I will not be buying the Nook Tablet. I will just move up to a 10" full Android tablet, not gonna be worried about ereading when the prices are that high. Way to kill a whole market segment greedos.

[eriksherman]

I think one problem with ebooks is that the marginal savings over paper is so small, but you still have to invest in the device to read. Maybe the benefit is not having to store the paper, but when you think about an Amazon being able to pull titles off your machine, you have to wonder if you really own any of it.