Random House is Last Remaining iPad Holdout, Fears Price War
Apple has signed deals with four of the top publishers to sell books on the iBookstore but the largest of the group, Random House, is still refusing to sign. Random House says (subscription required) that they have concerns over Apple’s pricing model, predicting that this model will erode publisher profits. Ironically, the other publishers have been pressuring Amazon to use the same pricing model as Apple.
Apple is using what is known as the agency model, where the publisher sets the price of each book and Apple takes a 30 percent cut. This is the same model app developers have for the App Store. Amazon, however, pays the publisher a wholesale price for each eBook (usually $7 to $9, sometimes as much as $15), then Amazon sells the book for whatever they feel is appropriate (typically $9.99).
The majority of publishers are excited about Apple’s agency model, because they fear the Amazon model will set the standard for all books being worth $9.99, similar to the current perception that all songs are now worth 99 cents. However, Random House is more concerned that when publishers begin to set their own prices, eBook pricing will soon start a race to the bottom, much like concerns app developers have had with app pricing.