Thursday, January 28, 2010
Books on iPad Offer Publishers a Pricing Edge
With a few notable exceptions, the print world welcomed Apple’s new iPad on Wednesday, eager to tap into the 125 million customers who already have iTunes accounts and are predisposed to buying more content from Apple. In negotiations with Apple, publishers agreed to a business model that gives them more power over the price that customers pay for e-books. “We have learned that it is never wise to stand between a consumer and a preference” for how they get their content, said John Makinson, chief executive of Penguin Group, the book publisher. The iPad may offer an even more attractive prospect: the chance to reset the downward spiral in e-book prices. When Steven P. Jobs announced the new iBooks app, he said five of the six largest publishers — Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin and Simon & Schuster— had signed on to provide e-book content for the new tablet. In negotiations with Apple, publishers agreed to a business model that gives them more power over the price that customers pay for e-books. Publishers had all but lost that power on Amazon.com’s Kindle e-reader. With Apple, under a formula that tethers the maximum e-book price to the print price on the same book, publishers will be able to charge $12.99 to $14.99 for most general fiction and nonfiction titles — higher than the common $9.99 price that Amazon had effectively set for new releases and best sellers. Apple will keep 30 percent of each sale, and publishers will take 70 percent. One book publisher did not sign on to the iPad: Random House, the world’s largest publisher of trade books. Stuart Applebaum, a Random House spokesman, said the company would “look forward to our continuing conversations” with Apple. In the short term, authors and publishers will most likely earn less from book sales on the iPad. On the Kindle, Amazon subsidizes the $9.99 price by paying publishers a higher wholesale price equivalent to what booksellers typically pay for print editions. But publishers were concerned that Amazon, as the dominant player, would eventually demand lower digital wholesale prices. The agreement with Apple gives publishers leverage to negotiate with Amazon on future pricing. Publishers acknowledge that digital content should be priced lower than the print content. “We listened to what consumers have said,” said Carolyn Reidy, chief executive of Simon & Schuster. Amazon and others are likely to continue selling e-books through the Apple app store even after the iBooks app arrives. No publisher wanted to discuss publicly what would happen if Amazon and others continued to charge $9.99 for new releases. But once Apple begins selling e-books at a higher price, publishers could withhold titles if Amazon continues to discount books to $9.99. Antitrust attorneys suggested there could be legal complications if Amazon claimed that publishers were colluding to set prices, or dictating prices to retailers, which is illegal under a 2007 Supreme Court decision. Newspapers had mixed reactions to the iPad. Martin A. Nisenholtz, senior vice president for digital operations of The New York Times Company, said the combination of iPad and app “joins the best of print with the best of digital.” The Times has not struck any deals with Apple yet, making it too soon to say whether the newspaper would charge for the app or solicit subscriptions on the iPad. But Christian A. Hendricks, the vice president for interactive media at McClatchy, which publishes The Miami Herald and The Kansas City Star, said, “We haven’t seen tremendous interest as far as demand for newspaper subscriptions on it.”
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