Amazon's Price Reversal: A Mixed Blessing

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Higher Kindle book prices may boost profits for publishers and Amazon while discouraging consumers who buy e-readers to pay $10 per title


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Really great move from Amazone, way easier to just download your books while you made your payment rather than waiting for them to arrive by post mail....


Higher Kindle book prices may boost profits for publishers and Amazon while discouraging consumers who buy e-readers to pay $10 per title


By Douglas MacMillan


Buyers of electronic books on Amazon's Kindle store rave about the convenient wireless downloads, the device's easy-to-read screen, and the $9.99 average price for new bestsellers. Before long they may have to settle for two out of three.


Amazon (AMZN) said on Jan. 31 that it will let Macmillan, one of the store's largest publishers, set its own prices for Kindle books and keep 70% of the sales. The green light is expected to result in a price increase of as much as 50% for Macmillan titles and may bring higher prices for Macmillan's competitors, the Authors Guild told Bloomberg News.


The price moves would give book publishers greater control over digital book prices and may help Amazon stem the losses it now incurs on many titles. At the same time, higher prices for digital books would add to the burden borne by e-book readers and it may curb demand from people willing to buy Kindles in the expectation that they can get digital titles for $10. "From the consumer's point of view it's obviously not the best decision, but Amazon wants to maintain their position in the e-book market and they've decided to play ball with the publishers," says Colin Sebastian, analyst at Lazard Capital Markets.


Before making its concession, Amazon initially reacted to Macmillan's demand for pricing controls by removing all of the publisher's print and electronic books from its site. After two days and a storm of criticism in blogs, the Seattle giant of e-commerce relented, saying in a letter posted on its site that customers should "decide for themselves whether they believe it's reasonable to pay $14.99 for a bestselling e-book," referring to the price Macmillan intends to set in the store.


Apple's iPad: a "compelling" option


Representatives from Macmillan did not return multiple requests for comment. Amazon spokesman Drew Herdener declined to comment on whether the company expected other publishers to request changes similar to Macmillan's.


Amazon has lost some flexibility over pricing, thanks to imminent competition from Apple (AAPL), which in January introduced a tablet-style computer that includes e-book reading. Amazon used its $9.99 price "as part of its competitive strategy to win in the e-books market," says Collins Stewart analyst Sandeep Aggarwal. With the imminent sale of Apple's iPad, "all of a sudden, publishers have very compelling choices."


Macmillan said in a Jan.30 public letter that it will sell new titles for "between $14.99 and $12.99." The new prices have yet to appear on the Kindle store, but customers are already voicing opinions as to how the increase will affect their book-buying habits. Many say there's a big difference between $10 and $15.
 
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