April 5, 2010 / 10:48 PM / 10 years ago

Publishers see pricing opportunity with iPad

NEW YORK (Reuters) - The early success of Apple Inc’s iPad launch may be great news for publishers looking for a digital storefront, but consumers could find themselves paying a bit more for their favorite writers.

Apple said on Monday it sold more than 300,000 iPads on Saturday and users had already downloaded more than 250,000 books from its iBookstore on the first day.

The excitement and early numbers point to the huge potential of a device that could help expand a fledgling e-publishing market which has been led by Amazon.com’s Kindle.

“There are only a handful of companies that have a 100 million customers or more. Apple is one of them. There are none in the book business,” said Brian Murray, chief executive HarperCollins, a unit of News Corp.

Apple’s arrival is already giving Amazon some real competition and changing the rules.

However, in an unusual twist, increased competition may be raising instead of lowering prices for consumers as publishers and device makers try to settle on mutually profitable business models.

In January Amazon briefly removed Macmillan’s titles from its site after the publisher said it would begin setting higher consumer prices for the e-books than Amazon’s standard $9.99.

Other publishers followed with similar demands and Apple has taken advantage of the opportunity.

Book publishers like HarperCollins’ Murray are pleased to have worked out a deal with Apple based on the so-called agency model rather than the reseller model. It means that e-books sold via Apple’s iBookstore will have more flexible pricing, with bestsellers tagged at $12.99, $14.99 or more.

This compares with the standard $9.99 for bestsellers that Amazon negotiated for the Kindle’s launch in 2007. Publishers had long complained about the dominance of Amazon in e-books and resented selling all bestsellers for just $9.99.

But in a sign that Amazon is feeling the heat, it has agreed to similarly flexible deals with publishers.

“Amazon had been in a position of real strength and now there’s another player giving more control to the publishers,” said Outsell analyst Ned May.

Barnes & Noble, which got caught up in Amazon’s e-book price war, confirmed this week it is moving to the agency model with publishers including Hachette, HarperCollins, Macmillan, Penguin, Simon & Schuster in a range of $9.99 to $16.99.

But while consumers might complain about increased prices, May thinks the news is good for all sides of the book industry, including Amazon.

“In a weird way, Amazon comes out quite ahead because they can tell consumers ‘it’s not our fault,’ but yet they can turn around and start making money,” said Forrester Research analyst James McQuivey.

“Honestly if you’re Barnes & Noble you’re kind of glad because you can’t afford to compete with Amazon on price — you don’t have the digital efficiencies that Amazon does.”

Yet not all book publishers are happy with the new arrangement. The largest, Random House, a unit of Bertelsmann, is in ongoing discussions with Apple about selling its books through the iBookstore but privately doesn’t think it’s a good idea to raise prices.

“We have no quarrel with Apple. We’re in talks with them,” said Random House spokesman Stuart Applebaum.

The impact goes beyond books. Perhaps in a sign of increasing confidence to stand up to Amazon, the New York Times raised the monthly new subscription price of its Kindle edition to $19.99 from $13.99.

New York Times declined to comment on its strategy. Its launch on the iPad has been initially with a free “Editors’ Choice” sponsored edition, but it is expected to launch a full subscription soon.

Reporting by Yinka Adegoke; Additional reporting by Phil Wahba; Editing by Richard Chang

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