MarketWatch Video Breaks Down Antitrust Investigations of Apple's Agency Model

Here's an interesting video from the Wall Street Journal's MarketWatch website with a quick discussion on antitrust inquiries into the agency model and related issues. You can also see it on your computer at http://bit.ly/ebookinquiry:

Of Apple, iPad and the eBooks Pie: "Oops, Our Bad! We Really Only Have 10% of Total eBook Sales"

By Stephen Windwalker, editor of Planet iPad

Copyright © 2010 Planet iPad

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There has been a great deal of attention paid already to some of the remarks that Steve Jobs made about ebooks and the iPad when he addressed the Apple (AAPL) 2010 Worldwide Developers Conference on Monday. There has also been a fair amount of confusion about the meaning of his remarks, and unfortunately, the confusion is a direct result of the fact that Jobs' multimedia presentation was deliberately misleading. It's too bad, because there has been enough good news for Jobs and Apple to report about the iPad that there's no need to embellish the numbers.

What's the problem?

It's simple. Jobs reported that iPad's 2 million owners have downloaded over 5 million ebooks, and he helped us with the math by telling us that this comes to about 2.5 ebook downloads per iPad.

He then said that five of the six largest publishers had told Apple that 22 percent of those publishers' ebook sales were coming through the Apple's iBooks app for the iPad.

All well and good so far, and let's stop here to give credit where credit is due, because that 22 percent figure is impressive for a company that was not even in the ebook business until this year. It is clear, at the very least, that -- strictly in terms of ebook market share -- Apple and its iBooks store are shaping as worthy competitors for Amazon (AMZN) and its Kindle Store.

But as Jobs was announcing the 22 percent figure, please note the slide that appeared on the screen behind him:

That's just wrong. Flat out wrong. Maybe Jobs didn't see it. Maybe he was nervous on stage and just trying to keep his gaze fixed on his audience.

But if he saw it, he should have stopped right there and said: 

"I don't know who wrote the text for that slide, but take it down. It's not accurate. At the most, we only have 22 percent of the less than half of the total ebook market that is represented by those five publishing companies. We don't have any share of the ebook sales by the largest English-language publishing company in the world, Random House. We also don't have any titles at all from thousands of other small and mid-sized publishing companies that are selling thousands of ebooks every day, many of them on the iPad. Let's not get ahead of ourselves, people. We intend to make iBooks better and better and to expand its catalog significantly, but right now we offer far less than 10 percent of the total U.S. ebook catalog*, which is why we're pleased at the success of other reading apps like eReader, and Kobo, and Stanza, and, well, other reading apps, on the iPad, the iPhone, and the iPod Touch."

That's what he should have said. Wouldn't a statement like that have been a breath of fresh air? In its own way, it would even have been magical and revolutionary, but it -- or words to that effect -- was also the minimum statement that would have been necessary to clear up the false hype, and inevitable backlash, that has resulted from the grossly misleading statement that appeared for all to see on the slide and has been displayed all over the web since Monday's presentation. Many of those present would be unlikely to know enough about the current state of ebook publishing to discern nuances of difference between Jobs' actual words and the slide's false statement.

Without getting into too much inside baseball here, it is also worth pointing out that the publishers' figures are further skewed by the fact that, in addition to the fact that neither Random House nor thousands of smaller publishers were included in the sample, any market share figures offered by the second largest publisher, Pearson's Penguin Group (PSO), are worthless due to the fact that all of Penguin's new release bestsellers were held out of the Kindle Store for nearly all of the two-month period under discussion.

The bottom line is that if Apple wanted to display a slide about "share of total ebook sales" while Jobs was speaking, the slide should have read as follows:

The actual percentage is beside the point, but is is not remotely close to 22 percent. Maybe you could stretch things and say it was 11 or 12 percent, but it's all just a process of estimation anyway, and it is so much more graceful to be conservative in these matters. And so much better for your and your company's credibility.

As I suggested earlier, 10 percent after two months is nothing to sneeze at, and plenty for Amazon, Barnes & Noble (BKS), and thousands of other booksellers to be concerned about. Anyone who fails to see that Apple hardware will be at least as important as Amazon hardware in revolutionizing reading, publishing, and bookselling during the balance of this decade is not paying attention.

So why, aside from an interest in corporate credibility, is it important to hold Jobs and Apple accountable to plausible accuracy on whatever statistics and factoids they do choose to disclose?

Because, in addition to the desire to keep us from losing too many Apple FanBoys to apoplectic excitement over the continuing magic of the iPad revolution, we are also at a time when publishers, authors, booksellers, and readers are trying to make decisions and evaluate strategies with regard to pricing, publication channels, purchasing, and other key matters. I've already read pieces at the Motley Fool and Seth Godin's blog suggesting that it's time to arrange the Kindle's funeral because its total failure in market share is near at hand. It's all well and good to think so, but not if your analysis is predicated on wildly inaccurate claims.

Michael Cader at Publisher's Marketplace offered a more measured analysis of Jobs' statement, and focused significantly on the fact that healthy ebook sales through the iBooks store would likely help the five big agency model publishers to offset the lost revenues they have experienced as a result of their move to the agency mode. However, he's mistaken to absolve Jobs of responsibility for the many inaccurate media reports about Apple's "22 percent share of total ebook sales" that ensued from Monday's presentation, because Jobs has to take responsibility for that headline on Apple's own slide.

Amazon obviously knew that its Kindle Ascendancy to the point late last year when it may have held 85 to 90 percent of the ebook content market would be short-lived dominance of an immature market, and one assumes it has been planning all along for the time when its success would bring credible competitors. Even if 50 to 60 percent of the first 5 million iBooks downloads were for Winnie the Pooh and other free offerings, the early iBooks success and its imminent offerings on about 100 million iPhone and iPod Touch devices guarantee that the Kindle Store will have to give up a significant slice of the market share pie to iBooks. But all those devices, and the march of history, will also mean dramatic growth for the pie, and until Apple demonstrates that it is seriously interested in the extremely profitable long tail of ebook catalog and sales, Amazon may continue to have a near monopoly -- pardon me for using such a loaded word in these litigious times -- on about 90 percent of its catalog, including many titles that are selling thousands of download units each month.

The agency model publishers can count on several things as long as they manage to keep from getting hauled into court for colluding to fix prices with Apple:

• Their overall ebook sales and profits will continue to grow in both the iBooks and the Kindle stores.
• Their print sales will gradually decline over the next few years, in spite of efforts to manipulate pricing to slow the inevitable transition from print to ebooks.
• Their ebook margins will be significantly better than their print margins for all the obvious reasons, but ebooks will soon have to carry an ever-larger portion of the editorial, design, marketing, and infrastructure costs due to the aforementioned transition. (At the point where ebooks are thus held accountable by the publishers' bean counters, the publishers will no longer find much benefit in manipulating pricing to counter ebooks' cannibalization of print book sales.)

But there are other patterns that should concern the big publishing companies every bit as much as they may be cheered by Steve Jobs' remarks this week (whatever they took to be his meaning):

• As the Wall Street Journal chronicled so clearly several days ago, the digital democratization of the publishing industry in all formats will continue with such force and velocity that old labels like "self-publishing" will lose much of their meaning as well as their stigma.
• Geometrically increasing numbers of "established" as well as emerging authors are bound to find it beneficial to deal directly with Amazon and Apple for the combination of 70 percent royalties and creative and marketing control, rather than to stick with traditional publishers.
• Amazon, Apple, Barnes & Noble, and Google are certain to play ever larger roles as book publishers in both print and ebook formats.
• The presence of an increasing number of free and low-priced reading options, even including public domain titles, will make readers more price-conscious and a little less likely to be willing to pay an impatience premium for any but the most buzz-worthy books.

Over a period of several years, it seems likely that the roughly 60 percent market share that the Big Six publishers have been reported to own in recent years will be under enormous pressure. If that market share were to fall to 50 percent by the end of 2012, 40 per cent by 2015, and 30 percent by the end of the decade, might those publishers then look back and wish they had played their hands differently? Whatever happens there, it is difficult to imagine any scenario in which both Apple and Amazon are not both standing and thriving.

*Apple's only claim about its iBooks catalog has been that it has over 60,000 titles, of which about half are free public domain titles. By comparison, as of today, there are 605,613 ebooks in Amazon's Kindle Store, of which about 20,000 are free public domain titles.

Disclaimer: Long AAPL and AMZN

Report: Texas Attorney General Probes Agency Model and Apple

We have suggested several times that the collusive price-fixing scheme known as the "agency model" would sooner or later lead to legal scrutiny.

Now we have a report from Publisher's Marketplace, via Teleread, that "the anti-trust division of the Texas Attorney General's office has been engaged in its own preliminary questioning ... that appears to focus on pricing practices for ebooks and Apple's entrance into the market in particular."

PM reports that the investigation has been "directed at the largest book publishers and at least some retailers."

 

"Those familiar with publishers' responses have described a range of strategies, from trying to limit the scope of inquiry so that companies are not overwhelmed by compliance to thorough disclosure aimed to assuring the department publishers on an individual basis considered establishing an agency model for ebooks for some time, prior to Apple's arrival on the scene," said the PM report. "Because of the broad scope of the department's requests for information, some publishers are already said to be incurring substantial six-figure legal bills in compliance."

iPad Nation Daily Bargain Book Alert for Thursday, May 6, 2010: Two "Amelia Peabody" Mysteries by Elizabeth Peters at $1.99 Each

Fun coincidence here. My friend Richard A. visited earlier this week and in the course of talking about everything under the sun we were talking for a moment about something that we both enjoy, which is quality audiobooks. Rick strongly recommended that I give a listen to Barbara Rosenblat's readings of some of Elizabeth Peters' series of Amelia Peabody novels, which he said, perhaps not in so many words, are the very apotheosis of excellence in the spoken word.

And I will.

But meanwhile, so soon after our conversation, I couldn't help but notice that there are two Elizabeth Peters ebooks from that self-same Amelia Peabody series racing up the ebook bestseller lists today after being priced at $1.99 each, apparently not by Apple or Amazon but by imprints of their agency model publisher, Hachette. No idea how long these prices will last, but given that they have been priced at $1.99 in both the Kindle and iBooks stores, one must assume that the pricing is no accident. Here they are (I'm using the links to the Kindle Store, since the iBooks Store does not allow for such conveniences:

• The Hippopotamus Pool
• Crocodile on the Sandbank  

So, if you don't have these books on your iPad, iPhone, or iPod Touch yet, and you've ever wanted to give Elizabeth Peters a read, now's the time. And one more reason why you might want to try these at $1.99, if you are an advocate of affordable ebook pricing:  

When an agency model publisher fixes a low price for a backlist title like these, the publishing is putting itself in a position to learn a great deal about pricing, sales, and profitability in the ebook world. Based on my own experiences and those of other authors, I believe that the ideal ebook price for many backlist titles is in the $2.99 to $4.99 range, and that most such titles, if they are quality books with a little bit of marketing effort behind them are likely to sell roughly twice as many copies if they are reduced from $9.99 to $4.99 or roughly three times as many if they are reduced from $9.99 to $2.99. If Hachette and other publishers find out that such formulas apply to their backlist titles, it could be a powerful incentive for them to lower prices wherever possible.

A First Look at How Apple's iBooks Catalog Breaks Out by Category and Publisher

If you are wondering exactly what's for sale in the iBooks Store that serves as Apple's home-field entry into the highly competitive arena of retail ebook apps for the iPad (and soon, we guess, for the iPhone and the iPod Touch), you may be interested in Ben Lorica's research post at his O'Reilly Radar blog, noted here via Teleread.

Among the interesting tidbits reported by Ben in his study of the "the over 46,000 (paid and free) books available through the iBooks app:"

• 68% are "paid," which according to my research suggests that 32%, or about 15,000 titles, are free. (For comparison's sake, 20,600 (or about 4.1%) of the 507,700 titles in the Kindle Store are free.)
• Over half of the iBooks catalog is fiction, despite Ben's headline that reads "A few weeks in, a third of iPad Books are Fiction." (The discrepancy is based on the fact that the original post broke out various genre fiction categories separately and did not include them in an aggregate figure).
• There's an interesting symmetry in the representation of the largest publishers between the iBooks App and the Kindle App (or, of course, the Kindle Store), which owes to the ongoing controversies and negotations involving the agency price-fixing model. Ben reports that Penguin/Pearson has the most iBooks titles with 23.5%; MacMillan, Hachette, Simon & Schuster, and HarperCollins andtheir imprints are all well-represented, but there appears to be nary a title to be found from the various imprints of the world's largest English-language publisher, Random House. Random House is the one Big Six publisher holding out from the agency price-fixing model, and whereas it is the very well-represented in the Kindle Store, there are, alas, very few Penguin/Pearson ebooks there.
• Smashwords appears to have found its niche, with 5.2% of the total catalog.

One thing that surprised me about the post was the 46,000 figure. It had been widely reported that there were 60,000 titles available in the iBooks Store at launch, so I left this comment on Ben's post seeking clarification, and if I hear back I will post an update here:

Terrific work, Ben. I'm surprised that the aggregate figure is 46,000, since we were all hearing 60,000 as of the 4/3 release date and would have expected some growth since then. Is there any chance that the 46,000 figure covers titles for which there has been an actual sale, or am I barking up the wrong apple tree? I'm naturally resistant to the notion that Apple would have padded the numbers!

Cheers,
Steve

"Blockade Billy," Stephen King's New Novella, Available Now in the Kindle for iPad Store at $7.99 with Buzz-worthy Publication Details; Available for Kindle Customers with Kindle, iPad, iPhone, iPod Touch, BlackBerry, PC, or Mac!

By Stephen Windwalker
Originally posted April 20, 2010

Ur, Er, Play Ball! And there's "No Kindle Required!"

Stephen King has served up a nice fat pitch for iPad owners and Kindle readers to hit out of the park with what appears for now to be the Kindle-only publication of a macabre new novella with a baseball backdrop, and the details of the release -- discussed below -- are likely to create serious buzz among readers, authors, publishers, and retailers.

Kindle owners may remember Mr. King, a novelist who makes his home in Bangor, Maine, but spends many hours each Spring, Summer, and Fall in a pretty good seat at Boston's Fenway Park. A little over 14 months ago King traveled to New York to appear on stage with Jeff Bezos for the launching event of the Kindle 2 and of Ur, a novella that featured excellent product placement for a Kindle that was, perhaps to some tastes, pretty in pink.

Later in 2009, Kindle-packing King fans were disappointed when King's bestseller Under the Dome was one of the first books to be "windowed," i.e., withheld in ebook format to give its hardcover launch a better chance. Today's announcement of the Kindle availability of Blockade Billy, five weeks ahead of the book's scheduled May 25 hardcover release, suggests an instance of reverse windowing that is unlikely to be upsetting to Kindle readers.

It appears that King has bifurcated or trifurcated his negotiation of book contracts for Blockade Billy, and published the Kindle edition under his own Storyville imprint, for which the only other Kindle publication has been Ur. Amazon has, at this point, discounted Blockade Billy's hardcover pre-order price by 33% from $14.99 to $10.11, and set a Kindle price of $7.99. Amazon's product pages for the novella show Storyville as the Kindle-format publisher, no publisher line for the forthcoming hardcover, and Simon & Schuster as the publisher for a forthcoming audio CD release, scheduled for May 25 at a price of $19.99.


In addition to the discounted hardcover, Amazon's news release and its website reference a limited edition hardcover that may have already sold out at a $25 price from tiny Maryland-based horror publisher Cemetery Dance Publications, with illustrations by Alex McVey.  The product page for the Kindle edition shows that the Kindle's text-to-speech feature is enabled for Blockade Billy.

Under the Dome, one of the books at the center of a price war between Amazon and some big-box retailers last fall, was widely discounted then to prices below $10 in both its hardcover and ebook formats. Its Kindle edition is currently priced at $16.99 under the agency model, with a hardcover price discounted from $35 to $20 and paperback pre-orders discounted from $19.99 to $13.99 ahead of their July 6 release.

Your humble reporter's initial research indicates that, as of 9 a.m. April 20, 2010, Blockade Billy is not available in Apple's iBooks Store. That could change at any time, and Amazon's news release does not refer to the novella as a Kindle exclusive.

However, as long as Blockade Billy effectively remains a Kindle exclusive, not only is it likely to help Amazon sell Kindles but, just as importantly, it is likely that to drive iPad owners to the Kindle for iPad app and increase public awareness that the Kindle Store provides iPad owners with a free catalog-rich, convenient "No Kindle Required" reading environment.


Here's the guts of today's news release from Amazon:

Bestselling and Iconic Author Stephen King Publishes New Novella "Blockade Billy," Available in the Kindle Store

 Kindle customers can now download Stephen King's "Blockade Billy" and begin reading in under 60 seconds  SEATTLE, Apr 20, 2010 (BUSINESS WIRE) --Amazon.com (NASDAQ:AMZN) today announced that the new novella by bestselling author Stephen King, "Blockade Billy," is now available in Amazon's Kindle Store (www.amazon.com/kindlestore) for $7.99. The Kindle Store now includes over 480,000 books and the largest selection of the most popular books people want to read, including New York TimesBestsellersand New Releases. Over 1.8 million free, out-of-copyright, pre-1923 books are also available to read on Kindle, including titles such as "The Adventures of Sherlock Holmes," "Pride and Prejudice" and "Treasure Island."

"We're excited to be able to offer our customers Stephen King's new novella in the Kindle Store, especially after seeing customer enthusiasm for King's Kindle-exclusive novella 'UR,'" said Melissa Kirmayer, Director, Kindle Content. "'Blockade Billy,' a shorter format book with a limited physical print run, is not only a great example of the publishing freedom Kindle allows writers, but also the rich content Kindle customers can find in the Kindle Store."

"Blockade Billy" tells the story of William "Blockade Billy" Blakely. He may have been the greatest baseball player the game has ever seen, but today no one remembers his name. He was the first--and only--player to have his existence completely removed from the record books. Even his team is long forgotten, barely a footnote in the game's history. Blockade Billy has a secret darker than any pill or injection that might cause a scandal in sports today. His secret was much, much worse... and only Stephen King can reveal the truth to the world, once and for all. Publishers Weekly writes of the book: "As King's fiction goes . . . a deftly executed suicide squeeze, with sharp spikes hoisted high and aimed at the jugular on the slide home."

The Kindle edition of "Blockade Billy" features both the cover illustration by Glen Orbik and the interior artwork of Alex McVey from the limited-edition hardcover published by Cemetery Dance Publications.

Stephen King has written more than 40 books, including "Misery," "The Green Mile," "Cujo," "IT" and "Carrie." He is the winner of numerous awards, including the Bram Stoker Award, O. Henry Award, Horror Guild Award and was the 2003 recipient of the National Book Foundation's Medal for Distinguished Contribution to American Letters.

"Kindle is a great way for authors to make different lengths of their writing available and to reach diverse audiences with their work," said Stephen King. "I'm excited to be able to offer 'Blockade Billy' in the Kindle Store."

Kindle is in stock and available for immediate shipment today at www.amazon.com/kindle. 

Forrester Research eBook Expert James McQuivey on iPublishers, iPrices, and iPads in Len Edgerly Interview

Ever since it first appeared back in July 2008 Len Edgerly's The Kindle Chronicles podcast has been a wonderful source of great information and insight into the eBook Revolution, and Len's interview with Forrester Research ebook expert James McQuivey in this week's TKC #90 is an especially good take. I've snarked at McQuivey a bit in the past, but as developments continue to unfold his thinking seems to be ever more smart and more bold about what the future may hold and which new products and features may turn out to be gold if and when they are unrolled, get sold, and take hold.

Here are a few of McQuivey's points that I found especially thought-provoking:

• He believes that, now that the "agency" price-fixing model has been established for the retail ebook prices of bestsellers and new releases, those prices will again migrate down to the familiar 9.99 price point because "market pressure will force them to and they won't be able to blame it on anyone else." Publishers then "will find themselves at $9.99 giving up 30 percent of their revenue in perpetuity to folks like Apple, whereas [until] now prices [were] at $9.99 and they actually [made] more than $9.99. So I think they are going to regret that in the future," McQuivey says. "Now that could be a year away, it could be two years away before the average price comes down to 9.99. We know that we'll certainly have some prices back at 9.99 within a year just because the market's pushing it that way.... We're not in a market where it makes sense to charge consumers more than $9.99 and 10 years from now we might see 9.99 as even a high price for certain categories of books."
• "Who knows if there's going to be any Federal Trade Commission look into how these publishers all happened to manage to change their strategy all simultaneously and commit to it," McQuivey said. "I'm not sure that it's necessary that the FTC go there but someone could push it if they wanted to." (Recently it has been my own view that Amazon is unlikely to lead or bring an anti-collusion civil suit against the Apple 5 publishers because, among other reasons, it could be destructive to the supply-chain business partnership between Amazon and the publishers, but that problem would not be as difficult in the event of regulatory scrutiny by the FTC.)
• McQuivey gave Random House some respect for staying away from the agency model and likened the current spectacle of the Apple 5 big publishers committing to the agency model without Random House to the U.S. basketball "dream team" of a few years back showing up for the Olympics without Michael Jordan. Leaving Random House off the team allows Random House to promote books at all kinds of prices, learn from the difference, and perhaps sell more of their bestsellers because they are significantly cheaper than their competitors' bestsellers. McQuivey estimated that Random House's decision to stay out of the fixed-price iBooks Store translates into a hit of "20 to 25 percent" to Apple's potential ebook sales.
• He was unimpressed by the long-term significance of any feature advantages that one ereader app might have over another on the iPad device, saying that such features that are easily replicated and "they'll essentially match each other feature for feature."

The only instance where I thought McQuivey had it seriously wrong was in his brief discussion of the iBooks Store vs. the Kindle Store as ebook vendors. He said "so far you can't buy books in the Kindle App on the iPad, and that is a detriment." But in emphasizing this distinction he seems to be handicapped by his self-avowed "conscientious objector" status relative to the iPad.

In the Kindle for iPad app, you get to the Kindle Store with either one (from the Home screen) or two (from within a book) clicks, and then you are in the extremely familiar, time-tested and user-friendly Amazon book retailing environment where you can download any Kindle title seamlessly and have it sent to your Kindle for iPad app (or any other registered device) within seconds. 15 years of online book retailing translates into tremendous strengths for Amazon, and the Amazon and Kindle Stores are far more conducive to searching, browsing, and sorting for books by title, author, subject, keywords, sales ranking, customer ratings, customer reviews, publisher, or publication date than the iBooks Store or any other ebook vendor's site.

As with the Kindle Store, you can get to the iBooks Store with either one (from the Home screen) or two (from within a book) clicks, but once you get there the selection and buying/downloading processes are actual slower than those in the Kindle App due to the more difficult search/browse/sort processes described below and the fact that you actually have to type in your iTunes or Apple Store password (not your iPad passcode) from scratch each time you make a transaction.

And for now the iBooks Store is severely limited in several ways that aren't surprising given the Apple has arrived a little late to the ebook party, including:

• Catalog (there are about 15 times as many books in the Kindle Store after one subtracts the roughly similar public domain catalog in each store)
• Customer ratings and reviews for content, which Amazon had the advantage of being able to migrate from print-formatted editions to Kindle editions when it launched the Kindle Store in November 2007. There are very few reviews or ratings for books in the iBooks Store.
• User-friendliness for serious readers when it comes to the kind of powerful search, browse, and sort architecture that was developed over a decade and a half by Amazon and has proven to be the most powerful content marketing architecture ever developed by a retailer.

Lastly, if you happen to hear Len's discussion of the exciting progress of his fledgling eBooks for Troops project and would like to follow up as a participant, here's a link to make the process friction-free: http://ebooksfortroops.org/