Amazon to Consumers: $14.99 is too much to pay for licensed DRM-eBooks (or why Amazon is worried about price-point piracy)

Despite Amazon's attempt to sweeten its royality deal with publishers as long as publishers agreed that Kindle editions would be priced between $2.99 and $9.99, at least 20 percent below the lowest price of the physical edition of the book and the title also be “offered at or below price parity with competition, including physical book prices” (do note the tie-in to print pricing), publishers have begun to reject Amazon's eBook pricing structure, claiming their content is being sold at too low a price for its value. TechCruch's Paul Carr observes that the real issue is hardcopy sales:

Thanks in part to deep ebook discounting by Amazon, but also because the same people who can afford hardback books are the same people who can afford e-readers, people are starting to buy ebooks where they once bought hardbacks. The only cash-cow remaining in publishing is disappearing, like CD sales for music, and DVD sales for movies.

Recently, the Amazon Kindle team caved in to one publisher's demand with the following statement:

Dear Customers:

Macmillan, one of the "big six" publishers, has clearly communicated to us that, regardless of our viewpoint, they are committed to switching to an agency model and charging $12.99 to $14.99 for e-book versions of bestsellers and most hardcover releases.

We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books. Amazon customers will at that point decide for themselves whether they believe it's reasonable to pay $14.99 for a bestselling e-book. We don't believe that all of the major publishers will take the same route as Macmillan. And we know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative.

(Emphasis added.)

Crippling eBook Sales to Protect Hardcopy Sales. Don't all publishers have a monopoly over the titles they own? Publishers are getting back to the business of setting the terms of sale prices. See Mark Giangrande's LLB posts More Publishers Balk at Amazon Pricing for e-Books and Amazon Drops, Then Undrops Macmillan eBooks in Pricing Dispute. 

In Hey, 1997 – Macmillan called, they want the Net Book Agreement back, Paul Carr  writes

For the first time in the UK since 1997, and ever in the US, publishers are able to set – and enforce- their own prices on ebooks. And they will; not to make a fair return on ebooks but rather to cripple their sales in order to protect early hardback book sales. They’ve admitted as much themselves, saying that prices will start high on hardback release, before dropping steadily over time.

The agency model the Kindle team refers to is the same model Apple's iBookstore will follow in selling eBooks by HarperCollins, Hachette Book Group, Simon & Schuster, Penguin, and of course, Macmillan via its iBookstore. The publisher will set prices, reported in the $7.99 to $14.99 range, with the publisher and Apple splitting the proceeds 70% - 30%.

$14.99 "Needlessly High" for Kindled Editions. What's interesting is that the above Amazon statement tells consumers that the value of licensed access to DRM-eBooks is something less than $15. Concerned about sales? You bet. See Bezos on Officially Not Embarrassing Kindle Sales (Quoting Gizmodo "'millions' is the most specific information we've ever seen about how well [Amazon's] ebook reader, and in turn the ebook reader as a product category, is doing. The answer? Not terribly, but not necessarily very well.") Increasing Kindled-edition prices isn't going to increase sales. Neither will facing stiff competition from an experienced online vendor like Apple with a better eReader experience.

And then there is the hackers. Paul Carr adds

The idea that this benefits anyone, least of all authors, is laughable. Every day, thousands more book lovers move to ebooks. These are people who devour books, and who are attracted by the convenience of getting new releases delivered instantly. Yes, there’s a chance that they’ll keep buying hardback books if ebooks go up in price. But now they’ve already invested in ereaders so there’s even more of a chance that they’ll simply turn to piracy to get their fix. It’s like if record labels had tried to encourage people to keep buying CDs by raising the price of mp3 downloads (or slapping restrictive DRM on them). All that would likely have done is drive even more people to Limewire.

No one promised Kindle purchasers and Kindle-for-PC users that their Amazon-licensed eBooks would always cost no more than $9.99 but "if Kindle owners are going to have to pay $13 to $15 for the same books they were once getting for $10, ought there not be some concessions, perhaps as in how iTunes dropped digital rights management for music files [when Apple unveiled tiered pricing in 2009]," writes PC World's Jared Newman.

Time for Hackers to Change the Marketplace? Jared Newman argues that "DRM can be hacked anyway, so publishers might as well treat their paying customers with respect. Let them convert and transfer e-book files as they please." See, e.g., Hackers Claim Victory in Cracking Amazon Kindle DRM. Happened with iTunes files but, remember, they were downloads that could be burned to CDs even before iTunes dropped its DRM restrictions, not licensed access to hosted eBook content. For the moment, we're comparing apples with oranges. See Some Thoughts on the iPad.

Ultimately, publishers will decide when their eBooks can be downloaded, shared and become eReader-software independent. That will depend not on the perceived value of their electronic editions or an attempt to protect hardcopy sales but on their desire to increase eBook sales at possibly even higher price points after a healthy dose of DRM hacking. [JH]