Will Publishers Ever Make Money Off Ebooks?

This article, from Paul Sweeting, originally appeared on Gigaom on 7/21/09.

Barnes & Noble’s launch of a full-scale ebook challenge to Amazon, including a deal to be the exclusive ebookstore provider to Plastic Logic’s would-be Kindle-killer when it’s released next year, means the emerging market for digital books will finally see some real competition. That’s good news for publishers concerned over Amazon’s iTunes-like dominance of the ebook business.

But not as good as it could have been, for Barnes & Noble’s pricing is keeping ebooks firmly in the loss-leader category, at least for the time being.

While Amazon has never disclosed the number of Kindles it’s sold since they were introduced in 2007 (analysts estimate it at roughly 1 million), the Kindle is clearly the most popular dedicated ebook device in the U.S., with a market share of at least 80 percent, probably higher. Thanks to the Kindle’s proprietary technology, however, there’s only one way for publishers to reach that audience of avid readers: through Amazon’s ebookstore (unless they’re willing to sell ebooks without DRM, of course, as most publishers are not).

Just as Apple did with its walled garden around the iPod, Amazon has used the leverage of its captive audience of Kindle users to set retail prices for ebooks. And, like Apple, it has set those prices largely to advance its own strategic interest in selling Kindles, not to maximize revenue for publishers.

Thus most new bestsellers at Amazon’s ebookstore can be downloaded for $9.99, less than half the list price most carry in hardcover. But Amazon still pays publishers a wholesale price of $12-$13 for those books, a loss-leader retail price that is quickly becoming the industry benchmark for new ebooks — to the deep chagrin of publishers, who worry that wholesale prices will eventually be dragged down as well. Google managed to bring a smile to publishers’ faces in June when it announced plans to launch an e-commerce platform for ebooks allowing publishers to sell directly to consumers at prices of their own choosing. But the big “get” for publishers was always going to be Barnes & Noble, the world’s largest bookseller and Amazon’s toughest potential competitor.

So what has Barnes & Noble done? Essentially, it’s gone and adopted Amazon’s pricing structure. Monday’s announcement boasts that the new Barnes & Noble e-book store will feature “hundreds of best-settlers” at — you guessed it — “only $9.99.”

Read the rest of the article on Gigaom.

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