Does Random House know something we don't?

by Michael

April 3 is right around the corner! For those of you who don’t pay attention to, well, any form of media, that’s the day that Apple’s iPad finally hits the stores. And, being the nerd that I am, I have to say I’m pretty excited. I love product launches, and Apple does them like no other. (I was very disappointed by the lack of excitement surrounding the launch of the Palm Pre when I went to purchase it on day one last year, but I digress.) I think our readers know how this relates to books, but in case you don’t, Apple is launching their iBookstore that day, as well. They’ll be offering books from all the major publishers, with one huge exception: Random House. When Steve Jobs announced the iPad back in January, he said that 5 of the 6 biggest publishers were onboard for the iBookstore. The absence of Random House was conspicuous, but they released a statement afterwards saying that they were working on an agreement with Apple. I’d assumed there’d be one in place by this point, but it looks like the iBookstore could very well launch without the largest trade publisher on board, as reported by the Financial Times. Honestly, I was really surprised. Until last week.

That’s when this article popped up on an iPhone fansite. It purported to show the working iBookstore, along with the prices. And the price for 27 of the 32 listed bestsellers that day? $9.99. The same price that publishers have been fighting against in the Kindle bookstore. I was thrown for a loop. The reasoning behind the to switch to the agency model was to take control of pricing and get rid of the expectation that ebooks cost $9.99. But here we were at that price again. Then, only two days later, a new screenshot showing most (but not all) of the bestsellers at $12.99. Color me confused. This pricing kerfuffle brought to mind this New York Times piece about publisher agreements with Apple. The piece suggests that Apple wanted the flexibility to drop prices for hot books that would be majorly discounted in print. As of today, it’s not at all clear what iBookstore pricing will be on April 3.

Thinking about the possibility of an ebook sold at $9.99 is troubling. In the agency model, retailers act as an “agent,” selling books at prices determined by publishers and collecting a percentage of each sale (30% in most cases). Authors are generally being offered a percentage of the net income from these sales—publishers are pushing for this to be 25%, so we’ll roll with that number for the purposes of this argument. In the agency model, with a book priced at $9.99, authors will earn $2.50 per book or less. Compared to the $3.75 they currently earn on a $25 hardcover (15% of list price), this is a dramatic reduction. Comparing this amount to what authors would earn under the current ebook market conditions is nearly as depressing. In the current sales scheme (the consignment model), a retailer is buying the book for about a 50% discount, then selling it at whatever price they like. Assuming the same $25 price list price for the ebook (which is pretty standard) and same 25% royalty for electronic books, the author receives a royalty of $3.13. (The question of why they would receive less than they do on the hardcover in this situation could be a blog post in itself.) If ebooks eventually make up 50% of the market (a number I believe is possible), that royalty arrangement will radically alter author compensation. That, obviously, concerns me. I’d really like to hear more directly and transparently from publishers on this issue. What effect will these arrangements with Apple and Amazon have on authors? It seems, from the Financial Times piece, that Random House may soon be having these conversations. But what about the other 5? Is it wrong of me to expect a little more openness? This makes me all the more impressed with John Sargent at Macmillan and his willingness to blog about their plans, admitting what they do and don’t know.

So, is there something in the Apple agreement that we don’t know about that Random House does? Or is it just, as Mike Shatzkin thinks, that Random House is trying to maximize their profits in the short term with the idea that they can jump on the bandwagon if the iBookstore takes off? We’re going to learn a lot more about all of this in the coming days.

On April 3, I’ll be picking up an iPad for myself (no willpower!), downloading the iBookstore, and most definitely tweeting about the experience. If I have important publishing observations, I’ll post them here, too. Looking forward to hearing what you all think about this.