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Apple had negotiated with Publishers and won the right to price NY Times Bestsellers at lower prices than the $12.99 to $14.99 prices for new books set under the Agency Model. This was reported by Motoko Rich of the NY Times on February 17th -

Motoko Rich at The New York Times has some very interesting news -

Apple inserted provisions requiring publishers to discount e-book prices on best sellers — so that $12.99-to-$14.99 range was merely a ceiling;

prices for some titles could be lower, even as low as Amazon’s $9.99. Essentially, Apple wants the flexibility to offer lower prices for the hottest books

Alexander Vaughn at App Advice temporarily forgot that (or perhaps he never knew it) and has written a sensational article about how Apple’s iBookstore is matching the Kindle on prices. Not only has he conveniently missed that this ‘breaking news’ has been reported by New York Times over a month ago, he’s made the glorious jump of taking this single data factoid -

Anyway, at the moment, out of the 32 eBooks featured in the New York Time’s Bestsellers section, 27, including the entire top 10 are priced at $9.99.

And used that to derive the conclusion that iBooks prices match Kindle prices.

If that insightful analysis (27 of 32 bestseller prices match so entire store prices must match) is correct then B&N prices ought to be the exact same as the Kindle Store – Given that B&N matches Kindle Store prices on nearly all bestsellers. But they’re not – Amazon Kindle prices are lower than B&N prices across the entire store.

Felix Torres at TeleRead has a great comment -

The issue isn’t whether *some* high-visibility books are the same or even cheaper. It’s whether the average price of the *entire catalog* is competitive. That would explain Amazon’s insistence on retaining price flexibility on non-BPH books, no?

After all, when B&N launched their ebook store last fall, they proclaimed they had “hundreds of bestsellers as low as $9.99″.

Amazon had thousands.

(And tens of thousands well under $9.99).

… as long as a significant share of the Amazon catalog remains outside the price-fixing scheme, the Amazon storefront will retain its advantage of lower average prices. And unless a particular buyer only reads price-fixed books, Amazon will remain the storefront of choice.

The typical Apple euphoria strikes

Apple sites have done their usual hype building and jumped to all sorts of conclusions (though to be fair App Advice had done most of the wild speculation for them). Headlines include -

• Average price of an ebook for the iPad reportedly to be $9.99.
• iPad iBook pricing to mimic Kindle eBooks?
• Apple may match Amazon ebook prices.

Again, all of this is based on looking at prices of 32 bestsellers. What’s really surprising is the inclination of some Apple lovers to take this to mean the iPad will kill the Kindle.

$9.99 Bestsellers on the iPad are good for Amazon

All the comments about how $9.99 iPad bestsellers are going to kill the Amazon Kindle are missing the point entirely. The threat is not that Apple would match Kindle on prices. The threat was that Apple would force prices to be increased and thereby hurt eReader and eBook sales.

Amazon would be very happy if Apple forced Publishers to match Amazon prices – thereby allowing Amazon to continue to use low ebook prices to drive ebook and eReader sales. However, that is unlikely. The whole point of the Agency Model is to raise ebook prices and slow down adoption of ebooks and ereaders.

The main threat the Agency Model and Apple’s iPad pose to the Kindle

A large part of the Kindle’s value proposition is -

1. $9.99 books - much cheaper than $14 to $25 hardcovers.
2. $9.99 books – they make up for having to buy $259 eReaders as you save money on book purchases.

The iPad gave Publishers another channel/option and they used it for two things -

1. To push the Agency Model that increases book prices and prevent Amazon from selling $9.99 books. Although bestsellers will probably still be $9.99. 
2. To introduce a fixed-price model with them determining prices so that no store has an advantage and stores get commoditized.

Publishers either want readers to get split between the Kindle and the iPad or, even better, ebook and ereader sales to stall. 

If book prices in iBookstore are same as on Amazon then the latter is ruled out.

Random House avoids iPad due to price war concerns

Gizmodo reports that Random House is avoiding the iPad because it worries about a price war. Gizmodo thinks this is stupid.

Let’s see -

1. The other 5 of the Big 6 Publishers think they can use competition between the iPad and the Kindle to raise prices. 
2. Random House thinks competition between the iPad and the Kindle is apt to reduce prices.
3. The other 5 publishers feel it’s OK to get the leader in ebooks and a big player in physical book sales angry.
4. Random House are supporting one of their main retailers (perhaps there’s even a gentleman’s agreement).

Which possibility would you put money on?

Also, there is the little detail of Publishers earning less money with the Agency Model. Basically, every Publisher other than Random House (of the Big 6) is taking less money and hoping that competition raises prices.

The tiny problem with the Agency Model

It’s just not that effective unless over 90% of Publishers embrace it. 

Any publishers like Random House that sit out of the Agency Model get an instant advantage – their books are available via Amazon for $9.99 or less while the Agency Model Publishers are stuck between $12.99 and $14.99. Let’s put aside the few hundred ‘bestsellers priced at $9.99′ that App Advice are getting hysterical over. There are hundreds of thousands of other books and the Agency Model Publishers are at an extreme disadvantage there.

It’s all business and self-interest and companies are aligning in directions that they think make the most sense for them and are the most likely to work. All this talk of right and wrong and sustainable prices is an excuse for not having the courage to be honest about wanting to retain power and profit.

Filed under: iSlate Apple Slate Tagged: | fight for $9.99, ibooks vs kindle store