E-Book Prices Ratchet Up

The Amazon model of selling e-books for $9.99 is being challenged by publishers, who are setting tiered pricing for digital books.

Antone Gonsalves, Contributor

February 8, 2010

3 Min Read

The number of publishers ready to ditch the $9.99 pricing model for digital books has grown to three, marking the likely end to the bargain that has been enjoyed by customers of Amazon and other online retailers.

HarperCollins, owned by News Corp., and Hachette Book Group are getting ready to join Macmillan in setting tiered e-book pricing, sharing a percentage of sales with retailers. Under the so-called "agency model," retailers get 30% of sales.

News Corp. and Hachette made their plans known just days after Amazon lost a high-profile dispute with Macmillan over e-book pricing. The disagreement led to Amazon suspending sales of Macmillan books briefly. Amazon, however, capitulated and agreed to let the publisher set its own price of between $12.99 and $14.99, depending on the popularity of the work.

In an e-mail sent to booksellers Thursday, Hachette Chief Executive David Young painted the company's move to the agency model as better for the industry and consumers because the publisher can set prices that are "rational and reflect the value of our authors' works."

"In the long run, this will enable Hachette to continue to invest in and nurture authors' careers -- from major blockbusters to new voices," Young said in the e-mail reprinted by the blog GalleyCat. "Without this investment in our authors, the diversity of books available to consumers will contract, as will the diversity of retailers, and our literary culture will suffer."

An immediate benefit to consumers, according to Young, is Hachette's plans to release e-books simultaneously with hardcover editions, which are typically the first format in the release of new books.

News Corp. CEO Rupert Murdoch also made it clear that he would abandon the current $9.99 pricing model used by the company's book-publishing unit, even though publishers are typically paid more and the retailer subsidizes the lower price.

"We don’t like the Amazon model of selling everything at $9.99. ... We think it really devalues books and it hurts all the retailers of the hard cover books," Murdoch said during News Corp. earnings call with financial analysts. Excerpts from the call were printed on The Wall Street Journal's All Things Digital blog.

Murdoch did not say how much HarperCollins would be charging for e-books.

"There will be prices very much less than the printed copies of books but still will not be fixed in a way that Amazon has been doing it," he said. "It appears that Amazon is now ready to sit down with us again and renegotiate pricing."

Publishers got their opening to change e-book pricing with Apple's introduction of the iPad tablet computer. Publishers plan to use tiered-pricing in offering e-books on Apple's online bookstore. Publishers lining up to support the iPad include HarperCollins, Hachette, Penguin, Macmillan and Simon & Shuster. More publishers are expected to join.

In taking control of pricing early in the emerging e-book market, publishers apparently have learned from the mistakes of record companies that let Apple set a 99-cent cap for songs sold on its iTunes store. The model led to Apple becoming the largest music seller in the United States by selling tunes for its market-leading iPod music player.

Apple's clout made it difficult for record companies to introduce tiered-pricing on iTunes. Apple gave in last year, only after intense pressure.

Following Apple's strategy, Amazon has used the $9.99 pricing model to become a leading e-book seller through the success of its Kindle reader. The thin, lightweight gadget accounts for about 60% of the e-reader market, according to some analyst estimates.

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