A bit of sun with Apple provisions for lower ebook pricing

NY Times's Motoko Rich reports today that Apple's prices for e-books may be lower than expected.

The image I used for this is a bit over-optimistic, but Rich begins her article by saying that "Maybe e-book prices won’t be rising so much after all."

We've seen public statements by Macmillan; Simon & Schuster; Murdoch for HarperCollins; and Hachette, expressing happiness over eventually being able to push Amazon to change their traditional Bookseller-Publisher wholesale price agreements to the 'Agency' fee contract modeled on Steve Jobs' Apple plan with publisher-set customer-prices of $13 to $15 for new bestseller e-books.

 The aim was to prevent Amazon -- Macmillan said -- from 'devaluing' their books by selling the e-books for only $9.95.

  Motoko Rich wrote in an earlier NY Times article (Oct '09):

'But some publishers worry that the convenience of borrowing books electronically could ultimately cut into sales of print editions.
  ...
  As digital collections grow, [John Sargent, chief executive of Macmillan] said he feared a world in which “pretty soon you’re not paying for anything.”

  Partly because of such concerns, Macmillan does not allow its e-books to be offered in public libraries. '

  In the current NYT article, Rich explains the Apple loophole:

' ... When Steven P. Jobs showed off the iPad last month, he announced agreements with five of the six largest publishers to offer their content through a new iBooks application. Those publishers ... agreed to terms under which they would set e-book prices and Apple would serve as an agent to sell the books to consumers...
  ...
Publishers indicated that e-book editions of most newly released adult general fiction and nonfiction would sell in a range from $12.99 to $14.99, under a complicated formula that pegs e-book prices to the list prices of comparable print editions.  Publishers liked Apple’s deal because it resulted in a marked increase above Amazon’s $9.99 price for most new releases.

But according to at least three people with knowledge of the discussions, who spoke anonymously because of the confidentiality of the talks, Apple inserted provisions requiring publishers to discount e-book prices on best sellers — so that $12.99-to-$14.99 range was merely a ceiling; prices for some titles could be lower, even as low as Amazon’s $9.99 [AB: All emphases mine].

  Essentially, Apple wants the flexibility to offer lower prices for the hottest books, those on one of the New York Times best-seller lists, which are heavily discounted in bookstores and on rival retail sites. So, for example, a book that started at $14.99 would drop to $12.99 or less once it hit the best-seller lists.

Moreover, for books where publishers offer comparable hardcover editions at a price below the typical $26, Apple wanted e-book prices to reflect the cheaper hardcover prices.  These books might be priced much lower than $12.99, even if they did not hit the best-seller list.

Tom Neumayr, an Apple spokesman, declined comment.

  ... Amazon has effectively lost money on each sale at [$9.99] 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. '

I quoted a lot of that rather than try to paraphrase it, as the NY Times did an unusually clear piece on the traditional pricing arrangements.  Read the full article on their site for more details.

Amazon has used the $10 pricing as a loss-leader, with sometimes higher pricing on some of its older e-books -- and earnings over the past year (in a bad economy) show that's worked very well for the stockholders and customers.

  It's a hardball tactic that has left publishers fearful that other bookstores can't compete on that basis and Amazon would have too much control over the e-book market.  After seeing the attempt at a 50% increase in bad times, I'd rather the publishers not set the customer prices but continue to set the wholesale ones and get their money, which they say is more money for them than with the agency plan.  I would think authors would like that too, unless Macmillan is not sharing that added amount with them.

  NO small factor is Random House's recently stated position that it does not plan to go to the Agency plan, leaving one big publishing house selling e-books at considerably lower pricing, putting more pressure on the other large publishers. Below are ways to Share this post if you'd like others to see it.
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