A serious dispute is brewing in the world of ebooks, pitting publishers and Apple against giant online retailer Amazon. A significant part of the appeal of ebooks is that they are (or should be) much cheaper than printed editions. In the publishing world, royalties paid to the author typically represent just 10% of the retail price. Both publishers and retailers take their cut. Printing is usually 30%, and then there are warehousing and shipping costs.
Since ebooks have virtually no printing, warehousing or shipping costs, one would expect them to be much cheaper than traditional paper books. And indeed, Amazon (which enjoys a 90% market share for US published ebooks) tries to hold the line, selling almost all their ebooks for $9.99. Reading an ebook sold by Amazon requires one to purchase a Kindle ebook reader.
Enter Apple, which intends to start its iBookstore business based on the new iPad. But unlike Amazon, Apple seems determined to push retail prices higher. Five of the USA’s six largest book publishers have reached agreement with Apple.
Under Apple’s business model, the publishers will set retail prices, and Apple earn a 30% commission. Retail prices are expected to average $12.99 to $14.99 per ebook.
This is forcing Amazon to respond by agreeing to allow major publishers to set prices in the Kindle store. In return, Amazon is demanding that publishers sign three-year contracts to guarantee that no other competitor will receive lower prices.
Apple is demanding that publishers not allow other retailers to sell ebooks for less than the iBookstore price. This is forcing publishers to renegotiate agreements they currently have with Amazon, where they sell ebooks at wholesale and allow Amazon to decide the retail price. Amazon is talking to smaller publishers that have not yet signed up with Apple, hoping to keep them in the old model which would protect the $9.99 retail price.
The dispute in pricing models got nastier in January when Amazon, in an act of retaliation, removed the “buy” buttons on its web site for printed editions of books published by Macmillan, one of its largest suppliers.
Publishers may like the higher retail prices – after all, it (theoretically) means more profit. But that is only true if the higher prices don’t scare off consumers. It would be ironic indeed if the new pricing model destroyed Apple’s iBookstore ambitions before it even gets off the ground.