By Jeremy Greenfield, Editorial Director, Digital Book World, @JDGsaid
Consumers looking forward to never paying more than $9.99 for an e-book may have to wait longer than anticipated.
Now that Amazon has the power to control more of its Kindle e-books’ prices, it will lower them slowly and strategically, according to a books-industry analyst from Forrester Research, Inc.
According to James McQuivey, Ph.D. and principal analyst at Forrester, Amazon has become accustomed to the 30% cut it gets from selling e-books under the agency model and won’t immediately transition all of those gains into losses when switching some agency books to the wholesale model, where Amazon was reportedly buying e-books from publishers at $13 or more and selling them to readers at $9.99 or less.
“Amazon is going to want to bring prices down but they’re going to do it strategically,” said McQuivey. “Amazon will lower prices with some best-sellers first, but they’re not going to cut across the board.”
Amazon will soon have the power to discount many of its best-selling e-books from the largest U.S. publishers, a power it didn’t have just a few days ago. Yesterday, the Department of Justice filed a lawsuit against Apple and the “agency five” publishers alleging an e-book price-fixing scheme. Three of the publishers– Hachette, HarperCollins and Simon & Schuster – settled with the DoJ and will be imminently moving away from the agency model of pricing where they set the prices with Amazon and split the proceeds.
“This is a big win for Kindle owners, and we look forward to being allowed to lower prices on more Kindle books,” said Amazon spokesperson Drew Herdener yesterday of the settlement.
While consumers who may have been reluctant to pay $12.99 for Guilty Wives (a Kindle top-100 title from Hachette) may be happier to pay $9.99 or less for it if and when Amazon decides to discount it, they will feel the price pain from the giant e-tailer in other ways later in 2012, said McQuivey.
“At the end of 2012, the consumer will see that Kindle e-book prices have come down but it may come at the expense of Kindle devices not being as cheap later in the year as they might otherwise have been,” he said.
Amazon’s razor-thin profit margin is to blame, according to McQuivey.
In 2011, Amazon generated $862 million in profit – normally a healthy number for any business. That profit was earned on $48.08 billion in revenue, however, giving Amazon a 1.8% profit margin, down from 4.1% a year ago.
On February 1, the day after Amazon announced its 2011 earnings, Wall Street sent its stock tumbling 10%. (The share price has since recovered to nearly January 31 levels after a strong rally in March during which it reached its 2012 high.)
“They don’t have the flexibility on prices because real-time razor-thin margins and that means that they will make some strategic price cuts on the e-books themselves but not across the board, because they can’t afford to,” said McQuivey.
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