After the U.S. cleared the deal, the European Commission has officially approved the proposed merger between two of the biggest book publishers in the world, Random House and Penguin.
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As it is seeking “new digital publishing models,” the merger has been widely commented on as a way to counter Amazon’s influence on the ebook market.
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The so-called agency model partially disappeared with the settlement of Apple and those book publishers. Book publishers now have a very thin margin to negotiate with Amazon to increase ebook pricing. According to publishers, the $9.99 standard created with the introduction of the first Kindle is not enough for newly released bestsellers.
That’s why the Penguin and Random House merger makes sense. The new entity will leverage its size to dictate its own terms.
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In other words, it could create a publisher-owned Kindle Store competitor, something that is highly needed to end Amazon’s dominance on the ebook market.
Link to the rest at TechCrunch
PG thinks readers ultimately determine what price is acceptable for ebooks. Amazon has done a good job of convincing readers that ebooks shouldn’t cost more than $9.99 and indie authors are convincing them that $2.99 – 4.99 is even a better price.
Artificially elevated prices only work if readers believe there is a limited number of interesting books they haven’t read. The Big Publishing/Barnes & Noble strategy has been to reduce the number of available books in physical bookstores and use the promo tables in the front of the store to focus readers’ attention on a small number of books.
Unfortunately for this strategy (or maybe because of this strategy), readers are not going to Barnes & Noble so much any more. In fact, the company’s announced plan is to close about one-third of its existing bookstores over the next decade. In the history of planned downsizing, businesses usually end up getting smaller much faster than they plan to do so, so PG expects disappearing Barnes & Noble stores to become a more and more common phenomenon.
A world with disappearing physical bookstores is almost an ideal environment for Amazon’s continued expansion. The readers who formerly shopped at their local Barnes & Noble will now go to Amazon where there is no shortage of interesting books readers haven’t read and no shortage of price competition.
If Penguin House is dedicated to the proposition of forcing ebook prices up, it must have one giant blockbuster after another. This means huge advances for the winners, but it also means that non-blockbuster authors will be treated even worse than they have been in recent years. Such treatment will tend to push smart authors toward indie world.
The must-have blockbuster strategy will also result in increased earnings volatility. If a couple of blockbusters fizzle, the year is shot.
If a big Penguin House ebook doesn’t sell at $24.99, the publisher is caught in a bind. Does it reduce the price to $9.99 and teach readers that this is a great price for an ebook or stick with the higher price and blow up the quarter’s earnings?
PG thinks a “strategy” of building a Penguin House ebookstore to compete with Amazon is foolish in the extreme, a path that only executives who know nothing about etailing and dealing with real customers would pursue. Since that profile describes the management of Penguin and Random House, the merged company may well try to take on Amazon with its own estore.
PG will offer a tag line for the Penguin House ebookstore at no charge – “Fewer books, but higher prices!”