The Music Industry’s Cautionary iTunes Tale Resonates with Publishers–And Apple

Published on January 27, 2010
by Peter Kafka

Look who has learned one of the most important lessons of the music industry’s love-hate relationship with iTunes: Apple.

The music labels love iTunes because it gave them a new revenue stream while CD sales withered away. And the music labels hate iTunes because it helped CD sales wither away by giving consumers the chance to replace $15 discs with $1 songs.

But now, as Apple prepares to launch e-book sales along with its new tablet, the company seems to be taking a different tack. It’s letting book publishers push their digital pricing up instead of down.

The Wall Street Journal reports that Apple (AAPL) was still haggling with publishers Tuesday night, but says the gist of Apple’s offer is this: Publishers can set their e-book prices at $12.99 or $14.99, well above the $9.99-or-less price point Amazon (AMZN) is pushing.

Apple’s terms would actually generate less money per sale for publishers than Amazon currently does, but publishers are so worried about digital cannibalization that they seem willing to take a hit in order to protect their paper-and-ink products. WSJ:

In adopting the Apple model, the balance of power would shift at least partly back to publishers, which regain control of pricing. In setting higher prices, they could provide a level playing field for all e-book retailers. The potential for publishers is that the device may generate greater volume for e-book sales.

But note that Apple isn’t offering publishers complete control of their pricing as it does with developers on its App Store. And while Apple is giving publishers more latitude, it is being more aggressive than ever with the TV business, reportedly by pushing the networks to cut prices for their shows.

The other big caveat is that if Apple does want to sell e-books for 30 percent to 50 percent more than Amazon, those e-books are going to have to be pretty special. Simply adding a dash of color and some graphics won’t cut it–these things will really need to be “enhanced” to justify the premium. Figuring out how to do that while keeping margins intact is a whole other story.

Plenty of time to hear about that later, though. For now, let’s see what Steve Jobs has to show us today.

Digital Daily’s John Paczkowski will be reporting live from the Yerba Buena Center starting at 1 pm ET; head over to his liveblog to catch the action in real time.

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