Apple Dictates Max E-Book Prices and Big Publishing Is Scared

Last Updated Mar 29, 2010 12:57 PM EDT

Last week I wrote about Random House's tentative relationship to the iPad because it wanted to keep authors in the dark over pricing. I think that still may be a factor, but it turns out there's an even bigger issue: Apple has given publishers maximums of what they can charge, through the company's iPad media site, for e-book versions of books already in print. Should the iPad prove as influential on book sales as some think, this could seriously upend the publishing industry.

What we couldn't tell from outside the negotiations is that the whole question of agency pricing -- publishers set prices on e-books and resellers (Apple in this case) take a cut -- was a mirage. Under Apple's plan, if a title is already in print, a publisher is can set any e-book price ... so long as it doesn't exceed Apple's imposed maximums. E-book self-publishing company Smashwords let the secret slip in an email to its author-customers:
If your book is not available in print, you can price your book at any price you like. Free is an acceptable price at Apple.If you do have print editions, here are the rules you must follow:

For ebooks, if you publish print counterparts elsewhere as mass market paperbacks (small, airport size) or trade paperback, then allowable pricing bands are as follows:

For all print books published with a list price of $22.00 or less, your Smashwords ebook price cannot be greater than $9.99 during the first twelve (12) months after publication in those print formats. Thereafter, you, the publisher may set whatever price you want, provided Apple doesn't deem it unrealistic.

For any mass market or trade paperback books with a list price greater than $22.00, you can set whatever price you want.

If your book is only available in Hardcover, and the Hardcover price is under $22.00 (U.S.), then the maximum allowable price for your ebook is $9.99.

If your price is $22.01-$24.00, the maximum ebook price is $10.99; $24.01-$25.00 is $11.99; $25.01-$27.50 is $12.99; $27.51-$30.00 is $14.99; $30.01-$35.00 is $16.99; $35.01-$40.00 is $19.99.

If your hardcover book is priced above $40.00, you can price your Apple ebook at any price you like.
No wonder Random House said that Apple's model would lead to lower prices. My argument about agency pricing being essentially the same as traditional discounting from list is completely wrong -- because it assumes that publishers are free to set prices as they wish. Clearly, this isn't the case.

Even though calculations generally show that the production cost savings of an e-book over, say, a hardback is only a few dollars, Apples expects that publishers will offer more than 40 percent price discounting over paper versions. Why not? Apple loses nothing from a low price -- the company gets its cut of the transaction -- and it gains from having inexpensive content to help sell the iPad.

However, this is a big problem for commercial book publishers. As more titles sell via electronic versions, revenues and profits continue to drop. Authors see shrinking return from their work, so as my colleague Damon Brown points out, the authors can write e-books and go direct to the market. Here are some factors driving them:
  • Given the variety of tools and services to turn manuscripts into books, creating an e-book is becoming ever easier.
  • As a reader of this blog pointed out publishers frequently use less care and editing in e-books than in printed versions, resulting in more typos and sloppy production. Perhaps this is a result of lower prices. In any case, authors may not get the same professional care as with print.
  • Most authors already must do most of their own sales and marketing.
  • It's relatively easy to get an e-book into "print," and so the one-time publisher advantage of having access to necessary title distribution is disappearing.
Publishers are running scared because increasingly, authors and resellers don't need them. The squeeze on their income has already started and they may, sooner rather than later, find themselves largely out of the book-publishing picture.

Image: RGBStock.com user dyet, site standard license.
  • Erik Sherman On Twitter»

    Erik Sherman is a widely published writer and editor who also does select ghosting and corporate work. The views expressed in this column belong to Sherman and do not represent the views of CBS Interactive. Follow him on Twitter at @ErikSherman or on Facebook.

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