Why E-Books Still Roil the Publishing World

by Brad Moon | March 8, 2012 2:53 pm

This whole e-book thing isn’t going quite the way that consumers were expecting when they started buying into the technology. E-readers were supposed to help readers save money on book purchases, and the savings would more than offset the investment in hardware.

Then publishers went on the offensive against Amazon (NASDAQ:AMZN[1]) and other e-book retailers, and pretty soon the $9.99 Kindle new release became much harder to find. Today, e-books don’t represent the savings they once did, and in many cases it’s cheaper to buy an old-school paper copy of a new release than it is to buy the digital version. For example, at the time of writing, Amazon sells Stephen King’s bestseller “11/22/63” in hardcover for $17.49, with the Kindle e-book version going for $26.91. Still, consumers shrugged and ate up e-readers, to the point that ownership of the devices among U.S. adults grew from 10% in November 2011 to nearly 20% in January 2012.

The fact that consumers are paying more for e-books is a factor in U.S. Justice Department (DOJ) warnings this week that the agency plans to sue Apple (NASDAQ:AAPL[2]) and five publishers for collusion on e-book pricing, based on allegations that they acted together to raise prices industry-wide, charges that European regulators have also been investigating. In addition to Apple, the defendants in the DOJ suit are expected to include CBS‘s Simon & Schuster (NYSE:CBS[3]), Hachette Book Group, Pearson (NYSE:PSO[4]), Macmillan, and News Corp‘s HarperCollins (NASDAQ:NWS[5])

A library favorite and publisher concern

If e-book prices are no longer a carrot, a good chunk of the e-reader growth can likely be attributed to dropping hardware prices. Amazon’s cheapest Kindle in 2007 retailed for $399, while the latest Kindle can be had for $79 — if you’re willing to put up with advertising desktops.

Another growth factor has been libraries. The ability to borrow an e-book from a library has proved extremely popular. The borrowed e-book can be loaded from home, the copy is pristine and there’s no need to return it since it simply deletes itself after the borrowing period is up. Little wonder that libraries were seeing the popularity of their e-book collections take off, with some locations reporting a 400% increase in e-book checkouts last year.

The popularity of borrowing e-books didn’t go unnoticed by publishers, however. Determined to prevent their industry being gutted by the transition to digital (as they feel the music industry was), publishers haven’t just hiked the prices of e-books for customers, they’ve been taking measures to curb library adoption of e-books as well.

When print trumps digital

TechCrunch reports that Random House has revised its pricing policy for libraries, raising the price for e-book titles by as much as 300%. Library journal The Digital Shift pointed to the example of a Random House e-book being offered to libraries for $40 being raised to $120. The library is able to buy the print version of that same book for $20. Even some children’s titles — which often cost $10 or under in print — are going for as much as $85 as e-books for libraries.

This isn’t the first case of a publisher lashing out at libraries over e-books, either. Last year, HarperCollins set a limitation of 26 check-outs for its e-books, after which a library would be forced to buy a new copy. Other major publishers either refuse to sell some popular titles to libraries or don’t allow them to lend out their e-books at all.

If libraries fall behind in offering e-book lending, though, it’s unlikely to stop the transition to e-books. Manufacturers of e-readers like Barnes & Noble (NYSE:BKS[6]), Sony (NYSE:SNE[7]), and Amazon have more to fear from multipurpose tablets cannibalizing their dedicated e-reader sales. But an extended battle with libraries is liable to create a digital divide where people prefer to buy digital books but are forced to resort to paper and trudging to the library if they wish to borrow them.

With libraries representing a multibillion-dollar customer for book publishers, and studies showing that library lending boosts sales (rather than costing the publisher future sales), these restrictive e-book policies seem counterproductive.

No word on whether the DOJ investigation will extend beyond retail pricing to include library agreements, but expect the outcome to have a ripple effect either way. Until e-book pricing stabilizes at a reasonable level (at both the retail and library purchasing level), the losers seem likely to be consumers and the publishers themselves.

  1. AMZN: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMZN
  2. AAPL: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAPL
  3. CBS: http://studio-5.financialcontent.com/investplace/quote?Symbol=CBS
  4. PSO: http://studio-5.financialcontent.com/investplace/quote?Symbol=PSO
  5. NWS: http://studio-5.financialcontent.com/investplace/quote?Symbol=NWS
  6. BKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=BKS
  7. SNE: http://studio-5.financialcontent.com/investplace/quote?Symbol=SNE

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