Apple Goes Toe-to-Toe with Amazon in Ebook Discounts

| Analysis

The Publishing IndustryIn the wake of a settlement with the U.S. Department of Justice (DOJ) that requires three publishers to drop the agency pricing model, steep discounting has returned to ebook pricing for titles from one of those publishers, HarperCollins. What's surprising, though, is that Apple is apparently willing to go toe-to-toe with Amazon on many of those same titles, matching many of the discounted prices in the iBooks Store.

The DOJ sued Apple and five of the big six publishers in the U.S., accusing the companies of price fixing in violation of antitrust laws. The move came after Apple signed agreements with the publishers to bring their titles to Apple's iBooks platform for iPad and iPhone.

That agreement allowed publishers to set the price with Apple taking a 30 percent cut, just like it does on apps, music, TV shows, and movies. Apple also included a clause that prevented publishers from allowing their books to be sold for less anywhere else.

Armed with that clause, the publishers forced every other retailer to renegotiate their agreements under the same terms. That included Amazon, who had been dumping Kindle versions of books in order to gain market share for Kindle, and the DOJ took exception

Authors, publishers, retailers, Apple, and at least one politician have protested the DOJ's action, with many accusing the Justice Department of artificially and perversely restoring monopoly power to Amazon in the name of competition. Amazon's dumping practice of selling best sellers for less than the company paid for them gave the company 90 percent of the ebook market before the agreement because other retailers simply couldn't afford to sell books at a loss.

Amazon's share fell to 60 percent after Apple's agency model brought pricing parity across retailers, allowing Barnes & Noble's Nook platform to grow, Apple's iBooks to flourish, and many third party retailers to get launched. Apple and two of the five accused publishers argued that that this level of competition and the innovations that accompanied it were better for consumers than the bottom-feeding race to the bottom that was Amazon's game.

While Apple, Penguin Group, and MacMillan are fighting the charge, HarperCollins, Hachette, and Simon & Schuster settled. Apple called the settlement unlawful and unprecedented, and an overwhelming number of documents were filed in the court overseeing the case protesting that settlement, but on Thursday Judge Denise Cote allowed the settlement to go through.

On Tuesday, new pricing from HarperCollins titles went into effect, with steep discounting on many of the company's best sellers. PaidContent put together a list of HarperCollins best sellers with pricing for Amazon's Kindle, Apple's iBooks, Barnes & Noble's Nook, third party ebook retailer Kobo Books, Google Play, and Sony's Reader store.

We updated that pricing and provided links for each book on each of the stores, and the results show that Apple appears willing to match Amazon with many titles. It also shows that Amazon has the lowest price on every book, though in each case, at least one retailer matches that price.

It was well known that one reason Apple moved the publishers to the agency model was because the company didn't want to compete on price. That was in 2010, however. In 2012, it appears that Apple is willing to do so.

HarperCollins ebook prices, 9/11/12 (as of 7:22 PM EDT)
(List compiled by Laura Hazard Owen of PaidContent, edited and linked by TMO)
Title Author Pub Date Ebook List Price Amazon Apple B&N Kobo Google Sony
The Cutting
Season
Attica Locke 9/18/2012 $14.99 $10.94 $14.99 $14.99 $14.99 $10.94 n/a
Telegraph Avenue Michael Chabon 9/11/2012 $17.99 $9.99 $9.99 $9.99 $17.99 $12.99 $13.50
The Rise of Nine Pittacus Lore 8/21/2012 $11.99 $7.99 $7.99 $7.99 $9.59 $9.59 $10.20
Judgment Call J.A. Jance 7/24/2012 $14.99 $9.99 $9.99 $10.94 n/a $10.94 $12.00
The Fallen Angel Daniel Silva 7/17/2012 $17.99 $9.99 $9.99 $9.99 $17.99 $13.13 $13.50
Bloodline James Rollins 6/26/2012 $14.99 $9.99 $9.99 $10.94 $14.99 $10.94 $12.00
The Shoemaker’s
Wife
Adriana Trigiani 4/3/2012 $10.99 $7.99 $7.99 $8.02 $10.99 $8.02 $9.35
State of Wonder Ann Patchett 6/7/2011 $10.99 $9.35 $9.99 $9.78 $10.99 $9.78 $9.35
Family Affair Debbie Macomber 1/4/2011 $5.99 $5.69 $5.99 $5.69 n/a $5.69 $5.99
The Happiness
Project
Gretchen Rubin 12/29/2009 $11.99 $3.99 $10.99 $3.99 $3.99 $9.78 $9.35
Act Like a Lady,
Think Like a Man
Steve Harvey 1/27/2009 $9.99 $7.29 $7.99 $7.29 $9.99 $7.29 $9.99
The Art of
Racing in the Rain
Garth Stein 5/13/2008 $10.99 $7.99 $7.99 $9.68 $10.99 $9.78 $9.35

We also noticed that Amazon manipulates its search results to list the Kindle edition for all but one of these books first, before the print editions.

It remains to be seen what effect this rush to the bottom will mean for ebooks and publishing as a whole. With Amazon leading the charge to devalue books and ebooks, eliminating profit margins for everyone in the chain in the process, there will be less money for innovation and fewer choices when it comes to how readers can buy and read their books.

As for Apple, the company tends to run its services such as iTunes, the App Store, and iBooks at just above break even, while it reaps industry leading profits from its hardware. It will be very interesting to see how far the company is willing to go compete with Amazon in ebooks.

Comments

Eyemahsource

I would love to see a publishing house insider reveal a spreadsheet on the relative profit margin and costs associated with paper vs. digital.  It seems intuitive to me that even Amazon’s prices give sufficient profit given the lack of press costs, distribution costs, storage costs and returns costs. I think the legacy publishers have been blowing smoke long enough.

Lee Dronick

Eyemahsource, I am thinking that these days printing costs probably are not as much they used to be, taking inflation into account. Furthermore it seems to me that paper quality is not all that great, maybe if one ordered library binding. It is probably more akin to software, there is more cost in development, the writing and editing, advertising and promotion, than in the physical product. But yeah, it would be very interesting to see how things really breakdown.

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