The war over e-book pricing

amazon_kindle_no_border.top.jpgBy Scott Cendrowski, reporter


NEW YORK (Fortune) -- Topping Amazon's best-seller list for the past week and a half has been Game Change, the salacious account of the 2008 presidential campaign complete with scenes from John Edwards' affair and Sarah Palin's mood swings.

Yet Kindle devotees have had to miss out on the cocktail party chatter. That's because the book's publisher, HarperCollins, decided to delay the digital version until late February in an effort to drive hardcover sales.

The move incited anger among Kindle devotees: a full 2/3 of Amazon's user reviews of Game Change give the book one star out of five not because of the content but mostly because of the delay.

In fact, Game Change is just the latest book to have a digital blackout window. Last fall HarperCollins delayed the Kindle version of Sarah Palin's book by a month, while Hachette Book Group pushed off the digital version of Sen. Ted Kennedy's memoir, True Compass.

But the customer ire over the delays may soon disappear thanks to a possible change that leaked out this week that could have major ramifications on how e-books are sold.

According to the Wall Street Journal, HarperCollins is in talks with Apple about making its books available on Apple's widely-anticipated Tablet device.

Neither Apple (AAPL, Fortune 500) nor HarperCollins would confirm the talks, but some publishing industry watchers think that if a deal were to go through, it could lead to an Apple-enabled selling platform that would allow publishers to sell books at a price they determine.

That would mean the publishers would be able to wrest back pricing power from Amazon.com (AMZN, Fortune 500), whose low prices for e-books have been one of the biggest issues confronting publishers since the digital devices first hit the market.

The six major publishers have worried that Amazon's low $9.99 prices for best-selling e-books will change how much consumers expect to pay for hardcover books, which still make up the majority of publishers' sales. On an Apple-enabled platform, the theory goes, Apple would serve as the middleman, with pricing decisions driven by the publishers.

"This is really going to change things," says Mike Shatzkin, a book industry consultant and CEO of Idea Logical Company. "Basically what the publishers are going to be saying [to Amazon] is, 'here's the new deal. You either live with our deal or Apple will be selling the new Dan Brown book and you won't.'"

If the publishers were able to charge more for e-books on an Apple retail platform, it would in turn likely lead to more same-time releases of e-books and hardcover copies -- which would appease those angry digital readers who don't like to wait.

To be sure, nothing has been launched or even announced yet, and Amazon holds a dominant position in the market, selling 90% of e-books, according to an estimate by TBI Research. On Wednesday, Amazon announced it was opening up the Kindle to developers in a move seen as a response to Apple.

A HarperCollins spokeswoman declined to comment about its reported talks with Apple, but she said Wednesday in an e-mail that enhanced e-books with video and other functions could be released simultaneously with hardcovers in the future "at a price more in line with the print edition."

The news comes as e-readers and e-books rapidly rise in popularity. Led by the Kindle, 1.7% of all books sold in the third quarter of 2009 were e-books, according to a Book Industry Study Group survey released this week. That's up 42% since the beginning of 2009. The survey also found that 20% of e-book readers stopped buying print books altogether. Shatzkin expects that figure to double by next year.

Even though publishers charge Amazon the same price for e-books and hardcovers, New York literary agent Richard Curtis explains that publishers are worried about Amazon and Wal-Mart (WMT, Fortune 500) muscling them to eventually lower the wholesale price of both.

In an effort to drive Kindle sales with $9.99 e-books, Amazon takes a loss on digital sales of bestsellers, which carry a wholesale price higher than $9.99. And Wal-Mart grabbed headlines last fall when it slashed prices on best selling hardcovers to an unheard-of $10.

"Sooner or later [Amazon and Wal-Mart] are going to turn to the publisher and say, 'we're losing money at $9.99. You guys have got to change the wholesale terms by which you sell books to us.'"

But if Apple scores a deal with publishers that allows them to control pricing, it would take some of the power away from Amazon. The company did not return calls for this article.

Of course much of this is speculation by the book industry, and for now, Kindle fans still have to endure delays on the hottest new releases.

But for some e-book converts, even the delay isn't enough to get them to go back to buying old-fashioned hardcovers. Alain Bourgeois, 68, a retired judge from New York City who buys 40 books a year mostly for his Kindle, skipped buying Game Change altogether when he learned about the delayed digital release.

"This is a book that has interest just long enough until there's enough press coverage with all the juicy parts," he says. "Is that worth $25 in hardcover? No, it's not." To top of page

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