Apple's E-Book Pricing Flip: Chaotic or Cunning?
At first, it seemed Apple was currying favor from book publishers by letting them have their way when it comes to iBookstore e-book pricing. Now a report indicates that Apple has required publishers to lower an e-book's price to below $10 if the title becomes a best-seller. Was it a communication breakdown or a brilliantly executed power play by Cupertino?
Apple's role as the book publishing industry's white knight may be over even before it has begun. Cupertino may not be willing to allow publishers as much leeway in setting their own e-book prices as previously thought, according to a New York Times report.
After unveiling the iPad Jan. 27, Apple shook the e-book world with its statement on e-book pricing. Several major publishers have agreed to provide content at the iPad's iBookstore. That sparked a battle with Amazon.com, which capped e-book prices on its Kindle e-readers at US$9.99.
However, Apple's contract reportedly contains a provision that required publishers to discount their prices on best-sellers.
That may leave Amazon twisting in the wind, as it recently agreed to let Macmillan match ebook prices on the iPad and give the publisher a bigger cut of the take.
Rust on the Armor
When he unveiled the iPad, Apple CEO Steve Jobs announced agreements with five major publishers -- the Hachette Book Group; HarperCollins Publishers; Macmillan; the Penguin Group; and Simon & Schuster.
The terms of the agreements let the publishers set e-book prices and give them a 70 percent take of the selling price.
Publishers indicated they would charge between $12.99 and $14.99 for e-books, well above the $9.99 ceiling Amazon had imposed. Further, Amazon took a 50 percent cut of a book's selling price.
Apparently, the agreements with Apple had provisions which required publishers to discount e-book prices on best-sellers. They also require publishers who offer hardcover editions of books at less than the industry-norm of $26 to peg e-book prices to the lower level.
What's Behind the Change?
Apple's reasons for the pricing change, if the report is correct, remain murky. They could be evidence that Apple's gaming the market. "Apple's trying to play both sides of the fence," Andrew Eisner, director of content at Retrevo, told MacNewsWorld. "On the one hand, it's trying to appear friendlier to book publishers with its willingness to let them charge higher prices; on the other, they know they're going to be out there doing battle with the likes of Amazon and Wal-Mart, who already skirmished in a book price war late last year."
Or, Apple could be wracked by internal dissension. "It sounds like there could be several different people working on this, and I wonder if Steve Jobs was involved at all," Rob Enderle, principal analyst at the Enderle Group, told MacNewsWorld. "It does seem like the change is kind of fast, and it's scaring all the publishers."
This may not be the first change the iPad has seen in its short life outside of seclusion in Apple's laboratories; shortly after Apple unveiled the device, it hinted that it would cut prices if necessary.
There's one more possibility -- that this is part of a Machiavellian plan by Cupertino to leave the competition flat-footed. "The iTunes model was based on lower prices for music, and Apple ended up being the 900-pound gorilla in that space," Enderle pointed out. "It never forgot that."
The iPad's advent and the unrest it stirred among publishers drove Amazon to consider the agency model and, now that Amazon's committed to higher-priced books, Apple's going back to the $9.99 level, Enderle said. "If this isn't a screw-up, it's got to be one of the most brilliant coups in Apple's history."
Fear and Loathing Among Publishers
Indications that publishers were less than thrilled about Apple's pricing began appearing earlier this week, as media reports indicated Jobs' courting of publishers to provide content for the iPad wasn't going smoothly.
Some publishers were apparently concerned that the revenue model didn't make sense for those who offered subscriptions. Others were afraid that Apple would do to the publishing industry what it did to the music business with iTunes -- drive prices to rock-bottom.
Perhaps publishers might begin flocking back to the Kindle and to Barnes & Noble's Nook.
Amazon.com did not respond to requests for comment by press time. Barnes & Noble spokesperson Mary Ellen Keating declined comment.