Publishers Like E-books, But Not at Ten Bucks

Book publishers are wondering how to respond to the pricing pressures they are going to increasingly face from retailers as e-books grab more market share. At present, e-books represent a small portion of the market (sales in September were up 171% over the previous year, but that was still less than $16 million, in a $23 billion annual market), but with readers such as Kindle coming down in price and up in consumer acceptance, the pressure is building. Some observers think this Christmas may represent the point at which e-readers reach critical mass.

Amazon is pricing e-books at $9.99, and publishers are getting antsy about what that will mean to sales of their thirty-dollar hardback bestsellers.

"As e-books grow as a category, there will be cannibalization," Epps says. "The early adopter buying an e-reader device happens to be the same customer who would have bought a hardcover book."

A big problem is that publishers can't afford to annoy Amazon. They have a channel with only three significant players (Amazon, Barnes & Noble and Borders make up 70% of the consumer book market) and one of them, Borders, is facing major difficulties. Nor is B&N willing to concede the e-market:

"Books are sold in thousands and thousands and thousands of outlets in America, and more than 50% of the books sold are outside of bookstores," Barnes & Noble CEO Stephen Riggio told analysts last month. "We believe that digital content will be much, much less fragmented than that, and we've established a strong position in order to gain a sizable market share as this market develops."

One approach publishers are considering is delaying e-book sales by several months, as they have long done with paperbacks.

What frightens publishers is that they may go the way of the record labels, which have proven incapable of dealing with the disruption to their business model caused by digital music: plummeting prices, piracy, and the almost total disappearance of the music store channel.

The iPod was introduced eight years ago, at which point digital music took off. We seem to be at the takeoff point for digital books and the question is whether book publishers have learned from the music industry's experience and will come up with a better strategy for dealing with change. Where will book publishing be eight years from now?