Tuesday, March 16, 2010

Is The iPad Taking On The Kindle?

Last Friday Apple began taking pre-orders for its iPad, scheduled for release in the U.S. on April 3. Depending on which story you read, as many as 150,000 pre-orders have already been received for the devices, priced to sell starting at $499.

While the iPad is obviously more than just an e-reading device, it's that e-reading function I want to talk about today.

Apple will now have its own iBooks store. As of this date, five of the Big Six publishing houses have signed on to support the iPad and the iBooks store: Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster. The lone holdout is the biggest of the Big Six: Random House.

I'm not sure how many of the enthusiastic iPad buyers are aware that the business model for their new e-reading device is not the retail model they've been accustomed to when buying from Amazon.

John Sargent explained the change in a post on the Macmillan blog earlier this month:
Starting at the end of March, we will move from the “retail model” of selling e-books (publishers sell to retailers, who then sell to readers at a price that the retailer determines) to the “agency model” (publishers set the price, and retailers take a commission on the sale to readers). We will make this change with all our e-book retailers simultaneously...Generally e-book editions of hardcover new releases will be priced between $14.99 and $12.99; a few books will be priced higher and lower.
Michael Cader expanded on that definition at Publishers Marketplace:
The key for most publishers is...the opportunity to change the basic selling terms of ebooks with at least one major trading partner in a way that lets publishers take back control of pricing and reassert their vision of the value of an electronic version of a book...

In the agency model, the publisher is considered as keeping possession of the actual goods (the ebook files) and it pays a commission to its authorized selling partners. So the publisher sets the retail price of the ebooks, and the commissioned agents have no ability to change that price. Ebooks sold under the agency model would be offered to any established trading partners who agree to the commission and other particulars.
I've seen a lot of bloggers complaining that "price fixing" is illegal. However, there is a difference between "price fixing" and "resale price maintenance." A Supreme Court decision on June 28, 2007 (Leegin Creative Leather Products, Inc. v. PSKS, Inc.) established the difference between the two.

Jeffrey A. Trachtenberg, who writes about publishing for the Wall Street Journal, did an article here in January in which he said:
Amazon created the e-book market by making the $9.99 price for best sellers an integral part of its introduction of the Kindle e-book reader in November 2007. But the Kindle lacks color and video capabilities, two elements that are likely to be crucial to the future of enhanced e-books. Amazon could be shut out of enhanced e-books until the Kindle offers those features.
There's a possibility that Apple and the Apple 5 (so called by Kindle Nation Daily) may go head-to-head with Amazon and Random House. Obviously, the five publishers are not going to sell new releases at the iBooks store for $14 and allow Amazon to sell those same books for $9.99.

Last month I was very intrigued when Teleread quoted Daithi here, talking about the ABA Winter Institute meeting on 2/5/10:
The only bright spot for Amazon, and Kindle owners, came from Madeline McIntosh, the President of Sales, Operations, and Digital for Random House. She pointed out that publishers “have no real experience at setting retail prices.” She also revelaed (sic) that one of the reasons Random House had not been party to the iBook Store at launch was because of the pricing issues.
Michael Cader also quoted McIntosh at Publishers Marketplace:
...McIntosh took on pricing control directly as one of the reasons Random House has "not acted quite as quickly as others." She expressed a series of concerns that publishers "have no real experience at setting retail prices." And she admitted that "we in New York are very disconnected from the price at which our goods are sold in this country, and that can be different in Miami and Kansas City and Portland."
So...it's possible the match-up could be described this way: In one corner we have the flashy Apple iPad and five of the Big Six publishers with a $499 iPad and enhanced e-book new releases at an average price of $14...and in the other corner we have the world's biggest e-book retailer (Amazon) and the world's biggest trade publisher (Random House) with a black-and-white $259 Kindle and new e-book releases priced at $9.99.

Winner to be determined by the reading public.

Grab yourself some popcorn and pull up a chair to watch the duel.

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