Apple’s Prices for E-Books May Be Lower Than Expected

Maybe e-book prices won’t be rising so much after all.
Since Apple announced plans to sell digital books on its forthcoming iPad, it has been cast as something of a savior of the publishing industry for allowing e-book prices to go above the $9.99 that Amazon charges for e-books on its Kindle device, a price that publishers say is too low to sustain their business.
But as more details come to light of the actual negotiations between Apple and publishers, it appears that Apple left room to sell some of the most popular books at a discount.
When Steven P. Jobs showed off the iPad last month, he announced agreements with five of the six largest publishers to offer their content through a new iBooks application. Those publishers — the Hachette Book Group, HarperCollins Publishers, Macmillan, the Penguin Group and Simon & Schuster — agreed to terms under which they would set e-book prices and Apple would serve as an agent to sell the books to consumers. Apple would take 30 percent of each sale, leaving 70 percent for publishers to split with authors.
Publishers indicated that e-book editions of most newly released adult general fiction and nonfiction would sell in a range from $12.99 to $14.99, under a complicated formula that pegs e-book prices to the list prices of comparable print editions. Publishers liked Apple’s deal because it resulted in a marked increase above Amazon’s $9.99 price for most new releases.
But according to at least three people with knowledge of the discussions, who spoke anonymously because of the confidentiality of the talks, Apple inserted provisions requiring publishers to discount e-book prices on best sellers — so that $12.99-to-$14.99 range was merely a ceiling; prices for some titles could be lower, even as low as Amazon’s $9.99. Essentially, Apple wants the flexibility to offer lower prices for the hottest books, those on one of the New York Times best-seller lists, which are heavily discounted in bookstores and on rival retail sites. So, for example, a book that started at $14.99 would drop to $12.99 or less once it hit the best-seller lists.
Moreover, for books where publishers offer comparable hardcover editions at a price below the typical $26, Apple wanted e-book prices to reflect the cheaper hardcover prices. These books might be priced much lower than $12.99, even if they did not hit the best-seller list.
Tom Neumayr, an Apple spokesman, declined comment.
While e-books still represent a relatively small proportion of total book sales, they are the fastest-growing part of the industry. How they are sold and priced has become a matter of fierce debate within the publishing industry.
For Amazon, the $9.99 price on new and best-selling e-books helped it market the Kindle device — which now sells for $259 — and build market share quickly. But Amazon has effectively lost money on each sale at that price because it buys and resells e-books as it purchases printed books, by paying publishers a wholesale price generally equivalent to half the list price of a print edition. That means that on a $26 hardcover book, Amazon would typically pay the publisher $13, losing just over $3 on a digital edition it sells for $9.99.
Under the agreements with Apple, both the publishers and Apple should make money on each book sale.