Publishers, Amazon in flux in e-book pricing fray

Amazon.com Inc. founder and Chief Executive Officer Jeff Bezos holds a Kindle 2 electronic reader at a news conference in New York where the device was introduced, February 9, 2009.

NEW YORK/SAN FRANCISCO (Reuters) - The chief executive of book publisher Macmillan said on Thursday his company is still in talks with online retailer Amazon.com Inc over the pricing of its books, even as Hachette Book Group vowed to protect its authors through a new model for prices.

Publisher Hachette said it would transition to a "agency model" for the sale of its e-books, but provided few details and did not name Amazon. Analysts define the model as one that transfers the retail pricing power to the publisher and gives a fixed cut to retailers.

Amazon has come under fire from a number of publishers for the low prices it charges for e-books to spur demand for its electronic reader Kindle, hoping to fend off new rivals such as Apple Inc that are set to join the e-books fray with their own devices.

Publishers fear that low e-book prices will cannibalize sales of its higher margin hardcover books.

Over the weekend, Amazon told its consumers that it would agree to Macmillan's demand that Amazon charge $12.99 to $14.99 for most of the publisher's books sold at the Kindle bookstore. Amazon currently charges $9.99 for the e-book version of most new releases and bestsellers.

On Thursday, however, Macmillan said talks were still ongoing.

The public jockeying between publishers and retailers in recent days points to the importance of electronic books in the nascent digital market, a growth driver for e-reader and content sellers like Amazon.

The chief executive of Hachette, David Young, sent a letter to agents about the company's new move to control the value of its books.

"This new model helps protect the long term viability of the book marketplace," wrote Young, in a letter provided to Reuters on Thursday.

Young did not disclose terms of the agency model in his letter.

"There are many advantages to the agency model, for our authors, retailers, consumers, and publishers. It allows Hachette to make pricing decisions that are rational and reflect the value of our authors' works," wrote Young.

He added that without investment in authors, "our literary culture will suffer."

DEAL IMMINENT?

Macmillan Chief Executive John Sargent's post on the company's website gave no hint of what the terms of a new deal with Amazon could be.

But he said: "Macmillan and Amazon as corporations had our differences that needed to be resolved."

Sargent said both companies had been in discussions since the weekend and praised Amazon for working "very, very hard and always in good faith" with Macmillan.

"I cannot tell you when we will resume business as usual with Amazon," Sargent wrote. "You can tell by the tone of this letter though that I feel the time is getting near to hand."

An Amazon spokesman did not return a request for comment.

Amazon temporarily removed all titles published by Macmillan, whose imprints include Farrar, Straus and Giroux, and Henry Holt and Co, from its website last weekend.

Barclay Capital analyst Douglas Anmuth wrote in a note on Thursday he expects market share for the Kindle to decline to 45 percent in 2011 from 64 percent now, given more competition from the Apple iPad and other readers.

"The emergence of a (potentially) strong distribution alternative in the form of Apple's iPad has given publishers the much-needed leverage to demand a change in the existing book model," Anmuth wrote.

Anmuth wrote that the agency book model could raise the price of best-sellers and new releases by as much as 50 percent, reducing demand for the Kindle.

At the same time, Amazon's margins would get a bump from the higher prices, he said.

He estimated that Amazon loses about $4 on each $9.99 title it sells -- assuming the list price is $27.50 -- but could make a gross profit of $4.20 on the same book under the agency model where it takes a flat 30 percent distribution fee, given a retail price of $13.99.

News Corp Chief Rupert Murdoch, who oversees a media empire that includes HarperCollins books, criticized Amazon's model on Tuesday and said Apple's deal with HarperCollins allowed for a variety of slightly higher prices.

(Reporting by Phil Wahba in New York and Alexandria Sage in San Francisco; editing by Andre Grenon and Carol Bishopric)