Hachette Joins E-Book Dogpile

Apple's (Nasdaq: AAPL) new iPad may look like a thin, fragile piece of hardware, but it's apparently strong enough for publishing houses to use as a powerful wedge against Amazon (Nasdaq: AMZN) in their negotiations over e-book pricing.

Hachette Group became the latest publisher to announce it was going to move to the "agency" relationship with retailers, which would result in a higher pricing structure -- possibly in a tiered range of US$12.99 to $14.99 for its e-books.

The Mediabistro blog GalleyCat published a memo late Thursday from Hachette Books Group CEO David Young in which he detailed the reasons for the move. It also announced that Hachette would release e-books simultaneously with hardcover editions.

"We're taking the long view on e-book pricing, and this new model helps protect the long-term viability of the book marketplace," Young wrote in his memo. "We believe that this new model is preferable to withholding books and is in our authors' and HBG's best interest."

The "agency" model, which gives publishers more pricing freedom while setting up a standard 30 percent commission to retailers, is the relationship that five major publishing houses have with Apple for providing content for the new iPad and its iBook Store. Hachette's new position puts it on a collision course with Amazon, which just went toe-to-toe with Macmillan last weekend over the latter's decision to raise e-book prices. Amazon removed Macmillan's books from its Web site for a short time, but it has since announced it will give in to the new prices -- although not without loud disagreement. Asked to comment on the issue, Amazon did not respond by press time.

Caught Between an iPad and a Hard Place

Amazon's Kindle e-reader helped expand the market for e-books, so the irony regarding Apple's entry into the arena and how it's impacting the Seattle-based online retailer isn't lost on IDC analyst Susan Kevorkian. "It's not a surprise that publishers are now seeking to change terms with Amazon, now that the digital book market has started to grow in earnest and will continue to do so with the participation of other major players like Apple," Kevorkian told the E-Commerce Times. "Publishers -- books and periodicals -- increasingly view digital distribution as a key source of future revenue and are seeking better terms with retailers in order to generate more revenue."

In his memo, Young stressed that Hachette isn't looking at the e-book market as some kind of digital goldmine. "In fact, we make less on each e-book sale under the new model; the author will continue to be fairly compensated, and our e-book agents will make money on every digital sale. We're willing to accept lower return for e-book sales as we control the value of our product -- books, and content in general."

Apple's participation in the current e-book pricing wars will likely play out differently than its experience in digital music and iTunes. Over the last decade, music publishers were initially willing to let Steve Jobs set a 99-cent ceiling for songs as everyone waited to see how digital music would play out.

Now in 2010, "content owners -- music labels, film studios, book and magazine publishers -- have a defacto monopoly on their products and therefore have significant power in the marketplace to dictate pricing, and if retailers like Amazon and Apple want to carry those titles, they need to come to terms with the content owners accordingly," Kevorkian said.

The Blowback From Pricing Wars

Consumers who have decided to spend money on a Kindle -- or received one as a gift -- may be spoiled by Amazon's $9.99 pricing. The e-book vs. hardcover release schedules are inconsistent; some e-books are day-and-date with in-store hardcovers, yet others requires a one- or two-month wait. However, customers may have been willing to put up with that to enjoy lower prices and instant-download convenience. Don't publishers risk customer wrath and damage to early e-reader adoption with these new prices?

"Yes and no," said Rob Enderle, president and principal analyst at the Enderle Group. "Consumers may pay more, but they should also get more hot titles earlier, and competition should eventually kick in where there will be more variety of book prices and specials to get people to buy, but it may take a few years for that to work itself out. Initially, consumers will pay more. Eventually, once we fully convert to e-books, they may pay less."

For the time being, Steve Jobs and Apple are wearing the Cheshire Cat grin described in Lewis Carroll's Alice in Wonderland -- which, by the way, you can download right now onto your Amazon Kindle for $2.80. For Apple, "it was more of a control, content-access move. By doing this, Apple took control from Amazon for the content and got access to more books, potentially -- at least until Amazon matches," Enderle told the E-Commerce Times.

"Apple's an important second mover in the digital book market now, and its legitimacy will depend on offering as comprehensive a selection for the iPad as Amazon has for the Kindle," Kevorkian said. "Apple is expected to pursue more deals with publishers to realize that goal, and sooner rather than later."