How Apple Will Whip Amazon in E-Books: Paying Publishers More
How do you endear a corporation to you? Help it make money. That's the tactic that Apple (AAPL) has used to great effect in its media reseller war against Amazon (AMZN). It shows how even a control-freak CEO like Steve Jobs can learn that loosening the financial reins pays off in the long run.
There is an irony in publishers pitting Apple against Amazon. After all, the former is now infamous for the "walled garden" that the iPad and iPhone have become. However, if Apple offers a walled garden, Amazon essentially offers a roomy prison. Amazon's approach to media sales has been to gain power through discounted sales and then use its importance to dictate terms to publishers, record labels, and movie studios. In the growing electronic media business, the result has been great for Amazon, which pays only 35 percent of e-book retail prices to the publishers, keeping the rest a combination of customer discount and money in the etailer's pocket.
Because Amazon's Kindle reader had been such a force on the e-book market, it could virtually dictate terms to publishers who had few options. With the advent of the iPad, Amazon's dominance may not stand long. Apple already claims 1.5 million downloads from its iBookstore, although that includes free titles. According to industry newsletter Publishers Marketplace, some publishers have seen "very strong sales" in the outlet's first month: "For most companies surveyed iBooks sales comprised 12 to 15 percent of all ebook sales before the new models landed, quickly equaling or surpassing Sony as their number two ebookseller."
Apple is quickly taking a significant share of e-publishing, not in small part because the publishers like the better financial arrangements. Apple charges only 30 percent of the sales price, which is even lower than traditional discounts for selling printed books. According to News Corp. (NWS) CEO Rupert Murdoch, the iPad simply pays better. Much better.
The iPad has already been very successful for the Wall Street Journal as an e-reader, News Corp's chief Rupert Murdoch said during a call discussing his company's latest results. About 64,000 are subscribing to the newspaper in just the first month; it's also significantly more profitable than the same subscription on the Kindle, he said. Unlike Amazon's insistence on a revenue split, the WSJ keeps all of the nearly $18 it costs for a month of reading.If publishers must check themselves into someone else's confines, they want top dollar. As Apple seems to offer the far better deal, publishers follow the money. Amazon still has a powerful tool: its standing as an outlet for printed books by the same publishers. However, as the business moves from wood chips to electrons, Amazon's leverage is going to dip and it will have to match Apple's terms, or find in the long run that perhaps it's not so necessary to publishers after all.The number didn't explicitly track those who have passed their free trial periods and are paying for the subscription, although the adoption rate is 20 times higher than just 3,200 in the first week.
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