Apple will drive ebook priceslower than Amazon would dare

At TechCrunch the other day, Erick Schonfeld posted that Apple, by allowing book publishers to charge what they want for ebooks, is gaining a critical advantage over Amazon in the battle to be the top ebooks retailer. This may well be true, as Apple, by building good relationships with publishers, would be well-positioned to get better terms, i.e. take more per sale, as well as get the chance to sell hot new titles before Amazon can, and so forth.

But will Apple sell more ebooks by letting publishers charge more for them? I highly doubt it. Rupert Murdoch and the lions of print can blather about how Amazon's pricing strategy "devalues books," but that strategy is based on a considered recognition of what consumers are willing to pay. Look at book prices - not nominal retail prices, i.e. the sticker on the front of the book, but the prices consumers actually pay. Factoring in returns and remainders, for the vast majority of titles, the average price of each copy printed is far lower than the nominal retail price.

Why don't book houses simply lower the nominal price, in order to sell more copies, more quickly? They're pursuing a discriminatory pricing strategy, by getting the "gotta have that book now" people to pay through the nose up front, then, by design or not, allowing the price of the remaining copies to fall, to levels at which other consumers will buy them. (I hope someone at these houses is doing this consciously, balancing the costs of warehousing, dealing with returns, etc., with the money to be made on volume sales, long after publication, at lower prices.)

In effect, by insisting on high ebook prices, publishers might be saying they want the freedom to pursue some similar strategy with ebooks. They could, for example, charge more for new titles, and those older titles in high demand, and lower prices for the rest. But $14.99 (or higher), the figure Macmillan insisted on in negotiating with Amazon, seems far too high a starting point. As Amazon recognizes, new ebook prices can be far lower than those for new print books, because ebook production, storage, and transfer costs essentially nothing, radically reducing the amount publishers invest in each title. Amazon also understands that lower ebook prices will entice readers to move to ebooks, and why wouldn't that be a good thing for publishers? I don't know the numbers, but I'm guessing that publishers' effective margins, on an e-title sold at $9.99, are as high or higher than on the same title, sold in print, at a higher nominal price. So publishers must view the Kindle and the iPad not as a means of reaching more consumers, but as a means of extracting more money from those of their current customers who've switched to onscreen bookreading. The problem, of course, is that their strategy is likely to drive many of those folks away from books, and toward cheaper, readily accessible alternatives to much of what's published in book form - all the free content that's available on the Web, for example.

Back to Apple and its efforts to make nice with book houses. I share what I think is Schonfeld's view, that this is aimed at driving Amazon out of the ebook business, or at least reducing its hold on that business. That might work, especially because the iPad, from the look of things, is much more powerful and usable than the Kindle - even if it's not quite good enough to be anything other than a niche device. But if Apple succeeds in this, do publishers really believe that it won't use its stranglehold on ebook sales to drive prices down as far as they'll go? And, in addition, force publishers to offer condensed versions of each title for sale at a bargain rate, and to break up titles for sale on a chapter-by-chapter basis, also at rock-bottom prices? Hello? Whatever Steve Jobs is saying during his "secret" New York meetings with publishers, they should ignore it, and get ready for the era of the 99-cents-per-song strategy, applied to their products.

Not that this will be bad for consumers, or, ultimately, for writers and publishers too. A more sensible pricing strategy should have a huge, positive effect on sales of ebooks, and of other text content, delivered in electronic form. And writers' and editors' cut of revenue should be far higher, with far less money spent on production, distribution, and storage - not to mention ineffectual marketing, and pricy midtown Manhattan office space.