Friday, 5 February 2010

Media Publishers' dilemma

So Macmillan, the book publishers, beat Amazon into submission, forcing them to charge $14.99 for bestsellers, rather than Amazon's proposed $9.99.  And now other publishers are lining up to make their demands on Amazon.

It seems like Amazon tried to do what Apple did with the music companies after the ipod became ubiquitous: leverage their big channel to customers to push supplier prices down, in a market that they had effectively reinvented. Your CD sales are dropping, but thanks to us, people are still buying your music online.  So drop your prices because we own your customers and they don't want to prop up your tired old distribution model, they want to pay less for something that costs a lot less to produce & distribute.

So why did Amazon fail, where Apple succeeded?  Possibly because of Apple, who, during their iPad announcement also revealed that they had deals with the major book publishers to release books through the iTunes store (or iBookstore as they're calling it).  And I'm sure they were willing to distribute at whatever price the publishers wanted, happily taking a percentage, like they do for iPhone apps.  Who is going to bet against the iTunes/iBook store?

Now, I suspect these publishers will end up dropping prices for the same reason the music publishers did, but not until they've milked it as much as they can.  Trouble is, it might be too late: in their greed they could well kill the iBook market.  Scenario: I want the latest bestseller. It's $14.99 at Amazon and $14.99 at iBookstore.  The former is presented in a portable, lightweight, rugged format. The latter requires a $700 not-so-rugged device to read it.  Which do I opt for?  The publisher doesn't lose out in either case (okay, margins may differ slightly, but a book is a book).  So maybe Apple starts to lose out.  Or maybe the other attributes of their versatile device make it the de facto reader of choice.  What will they do then?  Same as with the music publishers: squeeze the supplier.  Then the publishers would lose out.

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