Can Apple’s revolutionary iPad topple the Kindle, and save the book business?

“E-books are booming. Although they account for only an estimated three to five per cent of the market, their sales increased a hundred and seventy-seven per cent in 2009, and it was projected that they would eventually account for between twenty-five and fifty per cent of all books sold. But publishers were concerned that lower prices would decimate their profits. Amazon had been buying many e-books from publishers for about thirteen dollars and selling them for $9.99, taking a loss on each book in order to gain market share and encourage sales of its electronic reading device, the Kindle. By the end of last year, Amazon accounted for an estimated eighty per cent of all electronic-book sales, and $9.99 seemed to be established as the price of an e-book,” Ken Auletta reports for The New Yorker. “Publishers were panicked. David Young, the chairman and C.E.O. of Hachette Book Group USA, said, ‘The big concern—and it’s a massive concern—is the $9.99 pricing point. If it’s allowed to take hold in the consumer’s mind that a book is worth ten bucks, to my mind it’s game over for this business.'”

“At the Yerba Buena Center, it took a while for Jobs to mention books, and when he did he said that ‘Amazon has done a great job’ with its Kindle,” Auletta reports. “‘We’re going to stand on their shoulders and go a little bit farther.’ It would probably have been more accurate to say that Jobs planned to stand on Amazon’s neck and press down hard, with publishers applauding.”

Auletta reports, “An Apple insider said, ‘He thinks Amazon is stupid, and made a terrible mistake insisting that books should be priced at $9.99.’ …A close associate of Bezos puts it more starkly: ‘What Amazon really wanted to do was make the price of e-books so low that people would no longer buy hardcover books. Then the next shoe to drop would be to cut publishers out and go right to authors.’ …For the time being, Apple’s entrance into the book market has given publishers a reprieve. A close associate of Bezos said, ‘Amazon was thinking of direct publishing—until the Apple thing happened. For now, it was enough of a threat that Amazon was forced to negotiate with publishers.'”

“Most publishers mistrust Amazon and think it is unnecessarily secretive. It won’t tell them details about customer habits, or the number of Kindles sold, or what it costs to make a Kindle,” Auletta reports. “It won’t even disclose the percentage of revenues its book sales represent, saying only that “media”—movies, music, and books—accounted for fifty-two per cent of sales in 2009.”

“Publishers say that the negotiations with Apple were less contentious. There were arguments over the price of e-books, with publishers wanting the top price set at seventeen dollars and Apple insisting on fifteen,” Auletta reports. “‘Once Apple had determined that they were going to accept the agency model,’ a publisher said, ‘they were very tough: Take it or leave it.’ But the Apple people ‘had a much more agreeable feel than Amazon did. They said they would share some consumer data about buying e-books. We have no such data from Amazon.'”

Auletta reports, “‘Ultimately, Apple is in the device—not the content—business,’ the Apple insider said. ‘Steve Jobs wants to make sure content people are his partner. Steve is in the I win/you win school. Jeff Bezos is in the I win/you lose school.’ …Apple agreed to the agency model for just one year, and, as publishers are acutely aware, Jobs has a history, with music and television companies, of fighting to reduce prices. One publisher said, ‘Maybe Apple will want to come back in a year and bite our heads off.'”

Full, extensive article – highly recommended – here.

43 Comments

  1. If my Visa bill is any indication, it already has.

    Then again, I was already a reader. The question is will even the iPad turn a country of American Idol morons into readers?

  2. Once you remove printing and distribution costs, why shouldn’t books be cheaper? Sounds like book publishers are in the same sort of denial as newspaper and magazine publishers (and before them, the music labels).

  3. I own 2 Kindles (1st Gen & DX) and have the Kindle app installed on my iPhone, MacPro, MacBook & 64GB iPad. Otherwise, I know the Kindle very well. As an iPad owner, I also know the Apple iBook app.
    There is no disputing that the iPad is a more versatile device and worth more $. It’s also obvious as a reading device that the iBook app is inferior to a Kindle device on a couple of counts. Not the SW app- the hardware Kindle.
    1st, the Apple store is woefully short titles unless you are a casual reader of current best sellers and perennial titles. Grab 10 books off of your shelf and check availability. Most will be available on the Kindle and only a few on the iBook store.
    2nd, Kindle prices for content- magazines, newspapers, live updated paid blogs & books are
    lower and the selection vastly wider. Not only that-the papers, blogs and magazines are ad free.
    Next, PDF support is not built in to the iBook app and many magazines include PDF copies of their magazines for free or a reduced price from a paper sub. On the Kindle, with good built-in PDF support, all content is in one place & organized.

    Apple has a fine HW platform, but the iBook app is all eye candy.

  4. My brain is reeling from the idea that distributing a digital copy of a book that does not require physical infrastructure to reproduce does not automatically become more profitable. How can a 10 dollar book in digital form have less profit than a physical medium that must be printed, bound, distributed and displayed? Is no part of the price at the till a result of the cost of making a physical book?

  5. I was getting ready to make fun of this story after reading the headline, but it was a good read.

    I gues you can’t judge a book by its cover . . . er, headline.

  6. Anyone else a bit fed of with certain businesses in need of saving? It’s a catch-all phrase bandied about by people who need something to say that they think sounds intelligent.

    Things change. “In need of saving” now means “need more money.” I have no problem with that, but the way people talk about things is like crap lately.

    Let Apple “save” them. I’d rather them than someone else.

    Ugh. I might have to change my moniker to Curmudgeon.

  7. It is a good read (just over 6,000 words) and explains the breakdown costs of a book, albeit somewhat simplified, but it also describes a lot of other interesting facts about the publishing industry.

    This article from Feb 28 2010 – “Math of Publishing Meets the E-Book” http://www.nytimes.com/2010/03/01/business/media/01ebooks.html?ref=business

    tries to explain it, but I think that Motoko Rich is either an awful writer, or was purposely trying to confuse the issue … Actually, I have read other articles by him and I tend to think he is a bad writer; a very common occurrence in the media these days.

  8. > Once you remove printing and distribution costs, why shouldn’t books be cheaper

    Because the bulk of the cost is *not* printing and distribution, it’s content creation, marketing, and risk management across many books, most of which will fail financially. Same in music, same in movies. Labels and publishers and in many way like venture capitalists, then invest the large amounts of money necessary (far more than most artists have) to create and market the music, book, movie, etc. In music, 9 out of 10 acts signed to labels turn out to be financial failures, but like VC’s, the labels hope the 1 successful one will cover the cost of the failures. THAT’s what you are paying for. Printing and distribution is peanuts, and that’s way online is not much cheaper than physical.

  9. > Anyone else a bit fed of with certain businesses in need of saving

    I have seen a number of extremely talented artist put up their own money to release a CD or movie (I run a recording studio), sometimes upward of $100K (yes $100,000 to try to make it as a national release) with a great product, and for whatever reason they just didn’t sell anything significant, and now the artist is basically bankrupt. Billboard notes that 80% of all releases sell less than 1000 units, at $10 a CD, that’s only $10K, which will not cover a $100K investment, so sorry, but that’s reality.

    So you say “let’s get rid of labels”. Great, but while I have no love of labels, *somebody* needs to function as the venture capitalist and be willing to throw, say, a million dollars into 10 acts, in hopes that one of them might actually make money. Call it want you want, but that’s basically what labels do.

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