Don't Put Up With a 50% Price Hike

The e-book revolution is about to be tested. Now that Amazon.com (Nasdaq: AMZN  ) has apparently caved to one publisher's request for higher selling prices, the days of $9.99 digital best-sellers may be numbered.

Apple (Nasdaq: AAPL  ) has to be loving this. It's the one that has been feeding publishers with dreams of pushing e-books for $12.99 to $14.99 a pop when its iPad comes out in a few weeks.

It's a brilliant move on Apple's part. No one is going to pay at least $500 for an e-book device. If the iPad succeeds it will be because it's a jack-of-all-leisure-trades. Consumers can watch videos, check email, play games, stream tunes -- and, oh yeah, read virtual books -- on the iPad. Buying a digital book for slightly less than a physical hardcover won't be a difficult economic decision.

Apple's new pricing, though, is a dagger to dedicated e-book readers. Publishers will make sure that its digital reads are priced identically across platforms, and that means that it will be harder for Amazon, Sony (NYSE: SNE  ) , and Barnes & Noble (NYSE: BKS  ) to market their gadgets.

Let's say someone buys a Kindle for $259. She used to buy hardcover books through Amazon at an average price of $17. After 37 books through Kindle's $9.99 price point, the savings pay for the device. It would take 129 e-books at $14.99 to pay off the Kindle.

The thinner the pricing disparity, the less likely that consumers will make the switch. Bibliophiles aren't dumb. I hear they're well read. They will also be quick to realize that digital books can't be resold, swapped, or shared like physical reads. This will make it even harder to justify the higher prices.

Next of Kindle
Amazon can fight back. It can reach out to newspaper companies and offer highly subsidized -- perhaps even newspaper-branded -- Kindles for folks committing to long-term digital subscriptions. If Oprah Winfrey is such a big fan of the Kindle, how about an O model, subsidized to the tune of a long-term commitment to receive her monthly book suggestions?  

Amazon can also hit where Apple can't -- physical distribution. Amazon can reach out to publishers to bundle physical books with Kindle versions.

Ultimately, consumers will rebel. They won't pay $14.99 unless ALL publishers play along. Even then, there are the free public domain or nearly free indie author works put out through the store.

Yes, prices do go up.

DirecTV (NYSE: DTV  ) finds a way to inch average monthly revenue per subscriber higher with every quarter. Even Sirius XM Radio (Nasdaq: SIRI  ) , locked into a three-year deal where it can't raise prices, still found ways to introduce music royalty and online streaming fees.

This doesn't mean that Apple will get away with this tricky feat.

If the digital migration of music and video taught us anything it's that CDs and DVDs got cheaper and still sold fewer copies. Physical book prices will gravitate lower and sales will begin to shrink. If $9.99 is the magical price point for books -- as it was digital albums -- the marketplace will make it happen. If not, say hello to the playing field leveler's little friend: Piracy.

Consumers always have the last laugh
There is no law that states that publishers need to sell digital books at the same thin margins as their leafy reads. However, $15 for an e-book is going to be harder to swallow than a bowl of poi.

Why fork over $15 when for a few bucks more I can get a book that I can sell, swap out through the growing number of websites, lend out to a friend, or just park in my bookcase? The convenience of a handheld e-reader that can hold hundreds of books is attractive only to the point where I'm not being taken for a chump.

Publishers should be embracing $8-$10 price points for digital books for many of the same reasons (lack of reselling, swapping, or permanent sharing) that will drum up incremental sales. It's also hard to deny the huge costs savings of not having to print, ship, and gobble back returns on physical books.

If the publishers don't get it now, readers will let them know.

The New York Times is reporting about guerilla tactics in the cyberspace battlefield, where irate Kindle and Nook owners are scribing scorching one-star reviews on Amazon.com and BN.com for digital books priced in the teens.

To be fair, I also remember when Kindle pundits were also talking down the device on Amazon's pages -- posting negative reviews before they even bought one. It's a knee-jerk reaction -- with the emphasis on "jerk" -- that comes along with new technology.

However, the move to inch prices higher after Amazon has already sold millions of Kindles isn't right. Folks will rebel. Apple may laugh now. Real world superstores Borders (NYSE: BGP  ) and even Nook daddy Barnes & Noble may be chuckling on the sidelines.

But it won't end that way: Amazon -- and more importantly e-book readers -- will have the last laugh here.

Who will champion the inevitable digital e-book revolution? Share your thoughts in the comment box below.

Apple and Amazon.com are Motley Fool Stock Advisor selections. Try any of our Foolish newsletter services, free for 30 days.  

Longtime Fool contributor Rick Munarriz has been a Kindle owner since 2008. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (13)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 12, 2010, at 10:45 AM, minnowpea wrote:

    Although this post is well-written and insightful (noting the relative superiority of the iPad), it does however fail to notice that despite the interest in e-books, they are and will remain minor players in the publishing/book-selling space. The iPad does what we want it to do: displays magazines, newspapers, and internet content -- genius. And still very few people would bother to buy a pure Kindle-like e-reader just to read a grocery store bestseller that can be had for $8-$15 in print (and all the conveniences that the "antiquated" printed book offers). The fact of the matter is, big media bought into the e-reader, but real consumers did not. The fact that publishers are taking control of negotiations proves everyone's gut feeling: that e-books have simply not lived up to the hype paid to them.

  • Report this Comment On February 12, 2010, at 11:02 AM, FiliusBonaccio wrote:

    The differentiator between Apple's iPad and eReaders is E ink. People long ago said they do not like to sit and read computer screens. eReaders solved this problem by providing a different electronic reading experience that uses ambient light with a similar reflective property to paper. In addition, the extremely low power consumption used by E ink means the battery won't need to be charged every 2 hours, like every other portable Apple device. People may really want to be able to read for their entire 5 hour trans-con flight without the battery dying.

    If the marketers of ebooks focus on this distinction, rather than e-delivery and so-forth, they will be able to position their product in a realm different from Apple's.

  • Report this Comment On February 12, 2010, at 11:02 AM, FiliusBonaccio wrote:

    The differentiator between Apple's iPad and eReaders is E ink. People long ago said they do not like to sit and read computer screens. eReaders solved this problem by providing a different electronic reading experience that uses ambient light with a similar reflective property to paper. In addition, the extremely low power consumption used by E ink means the battery won't need to be charged every 2 hours, like every other portable Apple device. People may really want to be able to read for their entire 5 hour trans-con flight without the battery dying.

    If the marketers of ebooks focus on this distinction, rather than e-delivery and so-forth, they will be able to position their product in a realm different from Apple's.

  • Report this Comment On February 12, 2010, at 5:57 PM, EditorJim wrote:

    One thing to keep in mind is that Amazon is no longer an online BOOK store. Books in all formats are perhaps 13% of their entire revenue stream (Media - DVDs, CDs, books - is now just 25% of sales, but they don't break segment sales down in their reports), and while Kindle and e-book sales will probably boost the bottom line in the long run, they do NOT represent enough of the overall business model to justify the runup in stock price every time there's news about the Kindle or e-book growth.

    So even if they come to dominate this new market, it will have a relatively small impact compared to the rest of Amazon's e-tail business.

  • Report this Comment On February 14, 2010, at 2:23 AM, paulbverizonnet8 wrote:

    I SURE WISH SIRI INSIDERS WOULD BUY THEIR STOCK.

    GIORDANO BRUNO

  • Report this Comment On February 14, 2010, at 2:23 AM, paulbverizonnet8 wrote:

    I SURE WISH SIRI INSIDERS WOULD BUY THEIR STOCK.

    GIORDANO BRUNO

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