February 1, 2010, 12:00 AM

Amazon agrees to a publisher’s demand that it raise e-book prices

Amazon.com says it will give in to Macmillan Publishers Ltd.’s demand that it raise prices for electronic versions of Macmillan books. The decision comes after Amazon temporarily stopped selling Macmillan’s books.

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Amazon.com says it will give in to Macmillan Publishers Ltd.’s demand that it raise prices for electronic versions of Macmillan books. The decision, which comes after Amazon temporarily stopped selling Macmillan’s books, is the latest example of major publishers and web retailers jockeying for position in the fast-growing e-book arena.

Amazon, No. 1 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), generally charges $9.99 for e-book versions of new books and best sellers that can be read on Amazon’s Kindle e-book reader. The low prices mean the world’s largest online retailer often takes a loss on e-books; observers say Amazon wants to keep e-book prices low to generate demand for its Kindle reader and to extend its lead among e-book reader suppliers and, more importantly, as the leading web retailer of electronic content.

Late last week, however, Macmillan demanded-and Amazon accepted on Sunday-the retailer raise its prices to between $12.99 and $14.99 for new releases, with other titles costing between $5.99 and $14.99. Amazon will earn 30% of the sale price. Macmillan says the new price model will begin in March.

Macmillan CEO John Sargent presented the model to Amazon executives Thursday, a day after Apple Inc. introduced its widely anticipated tablet computer, the iPad. Amazon, No. 5 in the Internet Retailer Top 500 Guide (a PDF version of the company’s financial and operating profile can be ordered by clicking on its name), also announced its plans to launch an e-bookstore. The iPad, scheduled to go on sale in March, will have an iBooks app backed by five major publishers-Macmillan, Penguin Group, HarperCollins Publishers, Simon & Schuster Inc. and Hachette Book Group-that consumers can use to buy the books.

 

Publishers will set their own prices for books sold through iBooks and will pay Apple commissions on sales, a process called the agency model. That commission likely will be 30%, with e-book prices similar to what Macmillan wants Amazon to charge, according to reports.

“The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model,” Sargent said in a letter posted on the Macmillan web site Sunday. “Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.”

Sargent called for an e-book business model that is consistent throughout the industry, and is “stable and rational.”

The disagreement led Amazon over the weekend to remove Buy buttons from Macmillan books and e-books. The Macmillan publishing group includes such long-established imprints as Farrar Straus and Giroux, Henry Holt & Co. and St. Martin’s Press. As of Monday afternoon, the Buy button had not been reactivated, though consumers could buy Macmillan books through third-party sellers on the Amazon site.

Amazon, in a message posted Sunday on the Kindle Community section on its web site, said it would give in to the publisher. “We will have to capitulate and accept Macmillan`s terms because Macmillan has a monopoly over their own titles and we will want to offer them to you even at prices we believe are needlessly high for e-books,” Amazon said in the statement. “We don`t believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.”

Amazon gave no indication when it would restore direct Macmillan sales on the web site. Neither Amazon nor Macmillan responded to requests for more details.

“Amazon blinked to some extent,” says Colin Sebastian, an analyst with Lazard Capital Markets. He says the launch of the iPad and Apple’s plan to use the agency model for e-books likely gave Macmillan more confidence that it could force Amazon to relent. Now the question is whether other publishers will apply similar pressure to Amazon.

“Since Amazon capitulated to one of them, it’s hard to resist the temptation for a publisher,” Sebastian says.

Online retailers will sell about $500 million worth of e-books this year, estimates Forrester Research. Amazon, which on Christmas Day sold more e-books than paper books, will sell 4 million Kindles this year, the majority of the electronic reading devices sold in the U.S., Lazard forecasts.

“I think Kindle still has a great market position,” Sebastian says. “I don’t think any of this changes that. It’s a great product for an e-book reader.”

Whatever the outcome, the Macmillan-Amazon dispute seems like an opening skirmish it what promises to be a vigorous battle over e-book revenue and market position. Besides other publishers possibly joining the fight against Amazon, and the launch of Apple’s effort, Google Inc. later this year plans to introduce Google Editions, the search engine’s own electronic bookstore. Google has said that, while publishers will be able to set their own prices, it might discount some titles and absorb the losses, as Amazon does.

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