Publishers' Actions Threaten E-Book Growth

Last Updated Dec 14, 2009 5:20 PM EST

Doomsayers argue that electronic book readers such as the Kindle and Nook are deficient because of shortcomings with technology, pricey prices, and a belief that most people don't want to drag around yet another electronic device.

Turns out that the real threat to development of the digital tome market comes from the players you would have thought would be most enthusiastic: book publishers.

Just this week, three major publishers -- HarperCollins, Simon & Schuster and Hachette Book Group -- announced they will delay the release of popular books in digital format for up to six months after the books themselves are in stores. (HarperCollins won't release an e-book version of Sara Palin's Going Rogue until the day after after Christmas.) Penguin Group is likely to join this publishing pooh-pooh party shortly.

This can't be good news for e-book owners, or the hundreds of thousands of lucky people who will unwrap a shiny new iLiad or other device this holiday season. Suddenly one of the reasons for buying an e-book -- instant access to brand new top sellers at cheap prices -- is off the value proposition list.

It's the cheap prices that are causing publishers to rethink their e-book strategy. Publishing houses complain that the $9.99 price charged for popular Kindle titles undercuts their paper-based business model. So the firms now will experiment with shipping paper books first, enjoying the much higher profit margin while they can, and wait a month to six months before introducing the electronic version.

They can also be expected to experiment with "enhanced" digital books that include author interviews and other supplementary material, the Wall Street Journal reports today. Presumably, this would allow a higher price to be charged for an e-book.

But a pair of Harvard Business School professors, one the former head of Random House, argued recently that the publishing industry is making a deep mistake trying to price e-books the same way it charges for paper ones. According to Peter Olson (formerly of Random House) and HBS colleague Bharat N. Anand:

"Book businesspeople are about to make the same mistake that has devastated the music and newspaper industries: worrying about whether a new digital format will cannibalize their traditional business rather than focusing on how to make the new format more competitive with other digital media."
Instead, they write, by riding digital technology, publishers could sell e-books at even lower prices than $9.99 at healthy profit margins.

Publishers argue that in the long run, low prices for hot books hurt consumers because it will cause them to take fewer chances with unknown authors, and thus result in fewer choices for book buyers. This is the one argument I know is wrong. Thanks to the low-cost of digital publishing, there will be many entrepreneurs ready to step forward as virtual publishing houses and grow a business around new authors that the majors ignore.

So all this sets up a great four-way battle between publishers, makers of e-book readers (Amazon, Sony, B&N), sellers of online books (Amazon again, Wal-Mart), and consumers. You can probably throw traditional book stores into the mix, too.

Clearly this is not the end of e-books, no matter what happens. Kindle and its competitors were smart to ensure that they can be used to access all kinds of digital content -- magazines, newspapers, business docs -- and not just the New York Times best seller list. Still my prediction is that a lack of fresh new hot book titles for e-readers will substantially slow development of this hot new industry.

How do you see this conflict ending? Is $9.99 here to stay? Can consumers, e-book producers and distributors pressure publishers to change their plot line?

And most of all, does this move by publishers change your plans to buy an electronic book reader?

(Nook image by Barnes & Noble)

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.