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Why Apple treats Books and Music differently

11 February 2010 3,511 views One Comment

Its a move thats puzzling, strange and intelligent at the same time – Apple’s decision to not force any specific price on the publishers to sell eBooks on the iBookstore. Potentially, this move could be disastrous for existing eBook publishers, as Amazon has now realized. But there is more to analyse here.

The most interesting thing to do, is to compare the difference between how Apple has dealt with the Music Industry, and how it has chosen to deal with the publishing industry. There is another way to phrase this question: Will Apple do to Books, what it did to Music? (This question means different things to different people).

Before we move any further on this analysis, we need to understand one key point:  Today, Amazon loses money on most eBooks sold on the Kindle store. So basically Amamzon buys it for 50 percent of hardcover price (using an average of $26 hardcover price, this comes to $13) and sells it for $9.99. But this is an incentive for people to buy more Kindles, and it was all fine.

Lets continue with our analysis now.

Its now a known fact that Apple will allow publishers more leeway to set their own prices for e-books. “Although the prices will be tethered to print book prices by a formula that will generally yield prices between $12.99 and $14.99 for most fiction and general nonfiction, that is significantly higher than $9.99 discount that Amazon offers on its Kindle.”
(Stone and Rich report). We’ll borrow an example from The Washington Post, it summarizes the issue so well:

“Amazon’s business model was, in fact, the reverse of the one used so successfully by Gillette, selling razors at little or no profit but making it up on high-margin razor blades. In this case, the $9.99 retail price for the books (the blades) was actually less than the $12 to $14 “wholesale” price Amazon paid to publishers. That loss, however, was made up for by the high profit margins on the Kindles (the razors), which sell for $260 to $490.”

But what exactly had Apple dealt with a similar issue with Music and iTunes,when it had a similar challenge, in the Music industry – pricing songs? The answer: 99 cents. That was the price at which music biggies HAD to sell music if they wanted to sell on iTunes. 99cents a song. (Only recently, Apple has allowed Music labels to price songs at upto $1.29 each).

Why, the differential treatment?

The following are our conclusions:

1. Amazon had tried to be the “Apple for the publishing industry” by forcing the publishers to price the eBooks at $9.99. Unfortunately, unlike Apple (in Music), they dont expect to enjoy the same kind of dominance in eBooks. That, really is the key point. (Its easy to imagine this – if for example, iTunes had a big competitor, what would have happened to the pricing equation for songs? ).  If you try to be the Apple of some industry, and Apple enters the industry later, you need to make way. In some ways.

2. Apple went direct to the publishers for a reason: the economics of digital books (at least so far) meant that the publishers had to play by Amazon’s rule. Now, they have a genuine choice: we are talking about a device that will definitely outsell the Kindle. Pricing what you sell is your birthright, and the publishers jumped on the opportunity.

3. In conclusion: What Amazon.com did to books, “direct publishing and selling by authors to consumers” will do to ebooks. Its bound to happen. The only question, then, is “How soon?”

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One Comment »

  • Vern Stevens said:

    It is refreshing to read an opinion that recognizes the rights of the publishers in pricing their content. Amazon’s forums are littered with people who think the “free market” begins AFTER the publisher.

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