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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.