By Jeffrey A. Trachtenberg
When the world's largest publishers struck e-book distribution
deals with Amazon.com Inc. over the past several months, they
seemingly got what they wanted: the right to set the prices of
their titles and avoid the steep discounts the online retail giant
often applies.
But in the early going, that strategy doesn't appear to be
paying off. Three big publishers that signed new pacts with
Amazon-- Lagardere SCA's Hachette Book Group, News Corp's
HarperCollins Publishers and CBS Corp.'s Simon &
Schuster--reported declining e-book revenue in their latest
reporting periods.
"The new business model for e-books is having a significant
impact on what [the big] publishers report," said one publishing
executive. "There's no question that publishers' net receipts have
gone down."
A recent snapshot of e-book prices found that titles in the
Kindle bookstore from the five biggest publishers cost, on average,
$10.81, while all other 2015 e-books on the site had an average
price of $4.95, according to industry researcher Codex Group
LLC.
"Since book buyers expect the price of a Kindle e-book to be
well under $9, once you get to over $10 consumers start to say,
'Let me think about that,'" said Codex CEO Peter Hildick-Smith.
In some cases e-books cost almost as much as the hardcover.
Amazon is selling the hardcover edition of Jonathan Franzen's new
novel "Purity" for $15.10--11 cents more than the $14.99 e-book
price set by Macmillan Publishers, a unit of closely held
Verlagsgruppe Georg von Holtzbrinck GmbH. The publisher declined to
comment.
On Thursday morning, there wasn't a single title priced at $9.99
among the top 20 titles on the company's Kindle best-seller list.
Last summer, Amazon offered the digital edition of James
Patterson's thriller "Invisible" for the bargain price of $8.99.
Mr. Patterson's newest tale of suspense, "Alert," went on sale Aug.
3 on Amazon for $14.99, a price set by Hachette, Mr. Patterson's
publisher. The unit sales for Mr. Patterson's e-books weren't
available.
The precise impact of the deals with Amazon, the dominant player
in book sales, is still a matter of industry debate. The drop in
sales could be partly due to a crop of lackluster new titles. But
some publishing executives say higher e-book prices, resulting from
the Amazon deals, are discouraging purchases.
Publishers succeeded in preventing Amazon from lowballing
prices, but "unfortunately, it may be that consumers aren't happy
with the higher prices," said Mike Shatzkin, chief executive of
publishing consulting firm Idea Logical Co.
Hachette cited fewer hot titles and the implementation of its
Amazon deal as reasons that e-books fell to 24% of its U.S. net
trade sales in the first half of 2015, from 29% a year earlier.
Declining e-book sales contributed to a 7.8% drop in revenue in the
period.
The e-book woes of big publishers appear to be dragging down
sales figures industrywide. For the first five months of 2015,
publisher e-book revenue for adult, children's and young adult
titles fell 10.4% to $583 million compared with the same time in
2014, according to the Association of American Publishers' monthly
StatShot report, which collects sales data from 1,200 publishers in
the U.S.
Simon & Schuster cut a new deal with Amazon last October. It
was followed by Hachette, Macmillan and HarperCollins, which like
The Wall Street Journal is owned by News Corp. Macmillan doesn't
provide its financial results. The fifth of the major publishers,
Penguin Random House, majority owned by Bertelsmann SE, has a deal
with Amazon that went into effect Sept. 1.
Amazon declined to comment.
Pricing e-books is a Goldilocks problem for the book giants: For
years they worried that consumer prices were too low, and now they
are seeing the disadvantages of bumped-up prices. Publishers said
the current pricing model involves some sacrifice but they felt it
was worth it to keep Amazon in check. What's more, they have
noticed a bump in sales of physical books that is possibly related
to the higher price of digital books.
To figure out how to set prices, a team of data specialists at
Macmillan's Manhattan offices in the Flat Iron building sifts
through a database of 74 million transactions looking for trends.
Amazon looms large in that decision-making: It accounted for 64% of
the U.S. e-book market, by units sold, during the second quarter,
according to Codex.
Before 2010, book publishers operated with a "wholesale" model
for e-books in which they sold titles to retailers, which could
discount as they saw fit. Amazon was willing to buy a title for
$14.99 and sell it for $9.99, taking a loss to grab market share
and encourage adoption of its Kindle e-reader.
Publishers worried that such discounting kept Apple Inc. and
Google Inc. from emerging as competitors, as those companies might
not want to lose money on e-books. If Amazon crowded out others, it
would have greater leverage to extract better terms over time, they
feared. So they switched to "agency" pricing in 2010 with the
introduction of Apple's iPad. Under that system, they set the
retail price, and collect 70% of each sale.
The Justice Department filed an antitrust suit in 2012 alleging
Apple and five major publishers colluded to set higher prices.
Apple, which denies wrongdoing, was found liable in a civil case
and subsequently lost an appeal in June. Apple hasn't said whether
it will appeal that ruling. The publishers settled, agreeing to let
Amazon discount until new contracts went into effect.
The details of the new contracts, which publishers negotiated
separately, haven't been disclosed, but once again they have the
power to set retail prices. Amazon has said there are incentives
for publishes to deliver lower prices.
Publisher e-book sales have been stagnating since 2013, when
they fell 2.5%, according to Publishers Marketplace's analysis of
AAP data. The next year they grew slightly, before 2015's sharp
decline thus far.
One high-level publishing executive disputed that the Amazon
pacts are contributing to the e-book sales decline. "This is a
title-driven business," he said. "If you have a good book, price
isn't an issue."
Amazon says e-book sales in its Kindle store--which encompasses
a host of titles that aren't published by the five major
houses--are up in 2015 in both units and revenue.
As publishers game out e-book pricing, the stakes are high for
authors and agents. "I want my clients' books to be sold for as
high a value as possible, but the important word is sold," said
Richard Pine, an agent at Inkwell Management.
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(END) Dow Jones Newswires
September 03, 2015 15:29 ET (19:29 GMT)
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