updated 10:25 pm EST, Tue January 26, 2010
Apple willing to avoid Kindle's cut-rate rates
Apple is hoping to undo Amazon's lead in e-book readers by letting publishers set their own prices, a last-minute leak claims tonight (subscription required). To garner support for its 10-inch tablet, Apple is reportedly recommending that publishers sell hardcover bestsellers in digital form for either $13 or $15 but isn't locking them into the $10 target that Amazon uses for Kindle books. The deal would mean less revenue per book but would still give more control to publishers, who have often been forced to give Amazon books at half their paper value regardless of how much the text costs.
Those publishers that have met Apple tell the WSJ that Apple will continue to take the 30 percent cut it already has from app, movie and music sales at iTunes: under this model, a $15 book would only make the publisher about $10.49. Amazon would offer $14.50 on a book worth $28 as a hardcover, but it would knowingly take a $4.50 loss to reach its $10 target price at the Kindle Store, making its strategy a relatively unsustainable bid for market share over which publishers have little control. Apple's approach would give publishers more flexibility in the long term and also help them manage expectations for pricing.
Kobo, a recent but growing e-book retailer, adds that Apple's approach could set profit margins more in line with what publishers are used to, even if the revenue itself is lower. Apple may also be banking on assumptions that its name and the exposure through its online store could make up for lower revenues through sheer volume.
The behind-the-scenes negotiations, which may have been underway even on the Tuesday evening before Apple's event, have purportedly made Amazon furious and have led it to openly state its objections in discussions with publishers. One publisher characterizes the situation as "intense" and a "chess match" in which Amazon is trying to keep publishers on its side while Apple tries to lure them away.
While neither side is likely to confirm anything until after Wednesday's event, Amazon itself may have indirectly confirmed Apple's maneuvers through a slew of announcements made in the days since Apple set the 27th as the date for its likely tablet release. Notably, it offered a 70/30 revenue plan for publishers willing to keep their e-book prices below $10. It also hastily launched an app platform despite not being ready until February, and has been offering frequent Kindle Store shoppers a promo that lets them keep a Kindle even if they're dissatisfied and get a refund.
Apple isn't expected to actually ship its own device until March but could use the time to secure deals and otherwise drum up publicity for the release, which would also stress color publications and give readers Wi-Fi in addition to likely 3G. Textbook publishers should already be onboard as McGraw-Hill confirmed its deal in an interview today.