E-Publishing Business Models Explained

Apple announced the iPad with a great big fanfare but in fact for publishers the iBook app is probably the main event.
Harper Collins, Penguin, Hachette and Macmillan have already signed with Apple to sell their content through iBookstore in EPUB format.
However, other publishers are developing their e-book ranges with caution as there are some issues that are currently unresolved.
The current issues and arguments
  • From a publisher's point of view, an e-book sold at a lower price point is lost revenue as it means the loss of a higher priced printed copy sale, so e-books compete with printed books.
  • From a consumer point of view, an e-book should be cheaper than a printed book because there is no cost of manufacturing involved.
  • Amazon's fixed price point for e-books devalues books and doesn't give the publisher the flexibility to differentiate their products.
  • Amazon's model appears to be working as e-book sales are growing fast, but as colour e-book readers appear the type of e-books available will change to incorporate more expensive illustrated non-fiction titles.
Amazon's wholesale model Publishers generally sell e-books to Amazon at the same price as they sell paper books (around 50% of retail price), however, Amazon insists on selling them at $9.
Publishers like this model when the price of the printed edition is close to the e-book price of $9.
For example, if the retail price of the paper version is $10, Amazon buys for $5 and sells for $10 and the publisher gets $5 which is the same as they would if they sold a printed version.
The model doesn't work so well for higher value books; Amazon will buy at around 50% of retail, they will discount the selling price to $9.
99, making a loss.
Publishers don't tend to like this arrangement for higher value books such as hardbacks, even though they still make a reasonable margin on them.
For example, if the retail price is $30 Amazon buys for $15 and sells for $10 and the publisher gets $15 which is the same as they would if they sold a printed version.
Amazon sells at a loss.
The publisher is likely to sell more copies because of the lower price point.
However, the lower price point potentially devalues future book sales and puts pressure on hardback prices.
Apple's Agency Model Quite simply publishers get 70% of the retail price which they can set themselves.
This means that publishers can in fact earn more with the Apple model.
However, if publishers feel they need to reduce the RRP's of their e-books on the iBook platform to compete with Amazon's blanket discounting, this would then affect their revenue, and could result in reduced margins than with the current Amazon model.
Conclusion There is no doubt that the Apple model gives publishers a better deal than Amazon, however, the ideal model probably lies somewhere in-between the two.
If Amazon is discounting e-books heavily to $9.
99, although the publisher is still getting around 50% of retail price, Amazon are devaluing the e-book value, causing longer term issues for the publishing industry.
Macmillan has recently had all their titles, e-books and physical, removed from Amazon because they disagreed with the blanket reduction of e-book prices.
They requested an iBook type model, with Amazon receiving 30% of the retail value, which would be set by the publisher and not by Amazon.
This model would actually result in the publishers making less money from sales but publishers would be sure that e-books are set at a price that values their worth rather than a standard price for all.
Once iBookstore is up and running we will no doubt see if consumers are willing to pay more to access content on their iPad device.
By providing desirable hardware at the right price point, combined with easy access to content, Apple stands a good chance of disrupting the established e-book reader sales and fighting off the price war that Amazon seems so keen to have.
Keep an eye out for Google's e-book platform launching later this year called Google Editions as this may change the landscape yet again.
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