Book Publishers Welcome Apple Pricing, Mixed on iPad Features

In the aftermath of Apple’s January announcement of the iPad, people dished on the iPad name and pundits debated whether a tablet that didn’t have a camera, multitasking, or Flash support could compete. But book publishers zeroed in on a different set of questions.

These included how the iPad’s iBooks app and accompanying bookstore might shake up e-book pricing and the competitive landscape; whether the iPad launch will give e-books the boost they need to break into the mainstream; and how the features of the iPad’s iBooks reader stack up against expectations.

I spoke with several e-book and book publishing pros after Apple’s announcement to get their impressions of what they saw and their thoughts on what the iPad might mean to electronic book publishing.

Many in the industry are excited to welcome a new big e-book retailer to the market. There’s little question that Amazon and its Kindle have dominated the scene, with more than 3 million units sold so far.

Angela James, executive editor, Carina Press

“The Kindle sells books,” said Angela James, executive editor of Carina Press, Harlequin’s new digital-first imprint. “I’ve seen the royalty statements and the digital units move.”

But while there is appreciation for what Amazon has done to launch the e-book market, there are also concerns and some complaints. Many publishers hope the iPad will shake up the field. This desire for change was borne out just two days after the iPad announcement, when Amazon and Macmillan engaged in a brief, wild, and unusually public test of wills. The backstory of this dust-up highlights some of the key factors retailers and publishers are wrestling with.

Macmillan vs. Amazon

Shortly after Apple’s announcement, Macmillan’s books disappeared from Amazon.com, aside from links to sales by third-party booksellers. The next day, John Sargeant, Macmillan’s CEO, placed an ad in Publisher’s Lunch that gave the Macmillan side of the story.

At the core of the dispute was Amazon’s desire to keep prices for e-books low versus some publishers’ desire to nudge prices up and also regain some control over how consumers perceive the value of e-book titles.

Amazon’s Kindle store sells most e-books for $9.99 — a heck of a deal for titles that are often priced at between $25 and $30 in hardcover. Amazon has kept prices low in part by using an unusual model that often ends up paying publishers more than the Amazon sale price.

Here, in rough terms, is how it works: Publishers set a “Digital List Price” (DLP) for their titles — typically at or close to the manufacturer’s suggested retail price (MSRP) for the print edition. Amazon then pays the publisher a percentage of that price for each Kindle e-book sold rather than a percentage of the actual sale price. So if a book has a $30 DLP and Amazon pays the publisher 50 percent, the publisher’s payment would be $15 per sale, even though Amazon is only getting $9.99 from its customer.

This seems like a sweet deal for publishers. But not all publishers are comfortable with what this approach might mean over the long term. Some are concerned that $9.99 is just too low. They fear readers will get used to that price and Amazon will eventually pull back on its subsidies, leaving print books devalued and publishers’ e-book margins slashed.

At the iPad announcement, Apple had already lined up five participating publishing houses, including Macmillan. While the exact terms they’ll receive isn’t public, it’s generally expected that the arrangement follow “the agency model” — the same terms Apple uses for sales in its App Store. In the agency model, publishers are free to set their own prices and Apple takes 30 percent from each sale.

Let’s say the publisher sells the e-book version of a $30 hardcover for $14.99. After Apple’s cut, the publisher would receive a little over $10 per unit sold, which is roughly 70 percent of $14.99. This is around two-thirds of what they might have received from Amazon.

You rarely see a company fighting to receive less money per sale, or retailers insisting they pay more per sale. But here’s how the Macmillan ad explained what they feel is at stake:

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Shortly after pulling Macmillan’s titles, Amazon capitulated and released their clearly irritated side of the story. Over the next week, two other publishers — HarperCollins and Hachette Book Group — indicated that they’d also be pushing for Amazon to switch them to the agency model. And it’s expected that many more publishers will follow.

One result of all this could be additional retailers jumping into the fray. Hadrien Gardeur, co-founder and CEO of Feedbooks.com was optimistic about how that might play out.

“It seems as though we may be moving from a world where retailers compete on prices to a world where the publisher will fix the price, all the different retailers will have the same price, and it will be up to the publisher to innovate and try different prices and see what will work best,” Gardeur said. “If we have a fixed-price model, we’ll likely get much better innovation and more retailers. We can really create an ecosystem with this kind of model, where with the other model it was very hard for smaller retailers to compete.”

While there is some concern in the industry that this approach could lead to higher e-book prices and slowed e-book adoption, Gardeur was confident that competition would quickly bring prices back down again.

Looking for a Breakthrough

In addition to more retail competition, the industry is hopeful that Apple’s entry will help grow the e-book market. While Kindle sales have shown some of the promise of e-books, Peter Balis, director of digital content sales for John Wiley & Sons, said e-books currently represent roughly 1 percent of most publishers’ revenue.

“Apple has an incredible track record of late of converting consumers to digital adoption,” Balis said, citing the iPod. “If anybody has the power to follow up on the great work that Amazon has already done to create the tipping point, it’s Apple.”

Roger Stewart, editorial director of McGraw-Hill Professional, said the key to the iPad’s success as a reader may lie in the fact that it’s a multi-function device.

Roger Stewart, editorial director, McGraw-Hill Professional

“The reason publishers have long believed the iPad would have the potential to be a game changer is not because it was designed to be an e-book reader,” he said. “It’s a game changer because it does everything else well and, by the way, it also happens to be a great e-book reader. Most people are reluctant to pay $300 for an e-book reader, but if the reader is just part of the device that you bought for all those other reasons the barrier goes away.”

Apple also brings with it a trusted retail presence — one of the very few that can compare to Amazon’s. And the design of the iBooks reader, which hews closely to the look of a print book, appears well-positioned to bring new readers to the e-book market. The simplicity of the iPad may make it effective at helping publishers reach mass market readers who have yet to make the leap to digital books, according to Gardeur.

Andrew Savikas, VP of digital initiatives at O’Reilly Media, wondered whether, by focusing on the iPad, publishers weren’t overlooking the larger opportunity, including a well-established platform a base of more than 50 million potential customers who use iPhones and iPod Touches.

“Most of what the publishers seem to be looking for in the iPad…is a large scale market for digital books with a platform that provides the opportunities for rich media and has reasonably attractive payment terms, including the ability for publishers to set their own price,” he said. “All of that has actually already been part of [Apple’s] existing App Store really since it launched.” After we spoke, O’Reilly announced that they’ve sold 100,000 e-books to date through the App Store.

For Savikas, the development of the mobile web as a platform for readers has the potential to be the larger trend, with the iPad representing one of many devices that will make this possible.

Savikas said the iPod Touch and iPhone are creating “a new, larger market that judges the quality of the product based on very different attributes. They don’t care about the quality of paper or the smell of the book. What they care about is convenience — the fact that it’s just a part of a device that’s already a huge part of their daily life, the fact that it’s a device that’s connected to the web and to all the other things that they use on a regular basis.”

First Impressions of the iPad

These predictions aside, many publishing folks were only modestly impressed with what they saw of iBooks in the Apple demo. Feedbooks’ Gardeur, for example, felt that Apple had tried too hard to create a look and feel that evoked traditional books.

“Always displaying a bookshelf or replicating page turns, for example, can get annoying after a while, and I don’t think it’s really necessary,” he said.

He was also disappointed by his first glimpse at the iBook’s typesetting. “There’s not even hyphenation on the page,” he said. “If you’re designing a reading system I think it’s much better to offer optimized typesetting and really create something that’s beautiful and easy to read rather than trying to replicate pages in a real book.”

Although most readers don’t think in terms of kerning and leading, Gardeur’s concern was that when they start reading, they’ll be able to tell that something’s wrong, even if they’re not sure why.

Mike Hyatt, CEO of Thomas Nelson Publishers, was impressed by the iPad’s hardware, but disappointed by its software.

“I think that this is an evolutionary step, not a revolutionary step,” he said offering a list of features he was sorry not to see, including highlighting text, annotating, advanced search, and social media tools built into the reading experience.

“Really, all they’ve done is replicate the book experience on a digital device,” he said. “It’s begging to go so much further.”

One of the most obvious differences between the iPad and the Kindle is their screens. The Kindle features a monochrome display that uses E-Ink. The iPad uses a backlit full-color display that has publishers envisioning all sorts of possibilities for adding vibrant visuals. While this approach looks impressive, particularly in a demo, no one outside of Apple knows how well it will wear over time and whether reading The Brother’s Karamazov on your iPad might turn out to be a lovely but ultimately eye-aching experience.

However the iPad reader performs, it’s certain to be improved over time, and Amazon and other competitors are expected to raise their games as well.

“It’s a time of huge upheaval for publishing and a time of great innovation for devices,” said Carina’s James. “It’s an exciting time to be both a reader and a publisher, on the cusp of discovering what digital books can do. Even though they’ve been around for decades, they’re still in their infancy.”

Dan Brodnitz is a writer and content strategist. He is a past publisher at Sybex, John Wiley & Sons, and O’Reilly Media. He interviews working artists about their creative process at about-creativity.com and tweets at @danb21.