Books on iPad Offer Publishers a Pricing Edge
By Motoko Rich Published New York Times: January 27, 2010

With a few notable exceptions, the print world welcomed Apple’s new iPad on Wednesday, eager to tap into the 125 million customers who already have iTunes accounts and are predisposed to buying more content from Apple.
In negotiations with Apple, publishers agreed to a business model that gives them more power over the price that customers pay for e-books.

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Times Topics: iPad

“We have learned that it is never wise to stand between a consumer and a preference” for how they get their content, said John Makinson, chief executive of Penguin Group, the book publisher.

The iPad may offer an even more attractive prospect: the chance to reset the downward spiral in e-book prices.

When Steven P. Jobs announced the new iBooks app, he said five of the six largest publishers — Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin and Simon & Schuster— had signed on to provide e-book content for the new tablet.

In negotiations with Apple, publishers agreed to a business model that gives them more power over the price that customers pay for e-books. Publishers had all but lost that power on Amazon.com’s Kindle e-reader.

With Apple, under a formula that tethers the maximum e-book price to the print price on the same book, publishers will be able to charge $12.99 to $14.99 for most general fiction and nonfiction titles — higher than the common $9.99 price that Amazon had effectively set for new releases and best sellers. Apple will keep 30 percent of each sale, and publishers will take 70 percent.

One book publisher did not sign on to the iPad: Random House, the world’s largest publisher of trade books. Stuart Applebaum, a Random House spokesman, said the company would “look forward to our continuing conversations” with Apple.

In the short term, authors and publishers will most likely earn less from book sales on the iPad. On the Kindle, Amazon subsidizes the $9.99 price by paying publishers a higher wholesale price equivalent to what booksellers typically pay for print editions. But publishers were concerned that Amazon, as the dominant player, would eventually demand lower digital wholesale prices.

The agreement with Apple gives publishers leverage to negotiate with Amazon on future pricing.
The rest at NYT.