Averting a Digital Horror Story
Amazon.com's growing might and the sizzling success of the Kindle has publishers terrified. Hachette, Harlequin, and others are fighting back
O'Reilly: "We see ourselves as canaries in the coal mine" Eric Millette
Browse Issues
Kiwitech's Batra is working with Hachette to develop an iPhone app Michael Rubenstein/Redux
Hachette's Young: "We are giving away the family jewels" Bill Wadman
On Christmas Day, for the first time in its history, Amazon.com (AMZN) sold more digital books than the old fashioned kind. It was a watershed moment for the book industry—but it's scaring the hell out of traditional publishers. Even though they make the same amount on sales of both kinds of books, they see Amazon's digital dominance as a looming threat to their business, and with good reason. Their big worry: Amazon will end up with the same kind of pricing power in books that Apple (AAPL) has in music, and that the book industry will suffer the same kind of bruising decline.
One goal for publishers is to dilute Amazon's power. Hachette is selling e-books through more than a dozen partners, including Sony (SNE), Apple, and small retailers such as Fictionwise. By partnering with multiple outlets, publishers hope to regain control over pricing and gather purchasing data that could fuel future sales. They're unhappy Amazon has dropped the price of some new digital best-sellers to as little as $7.99, compared with $35 for hardcovers. Hachette and Simon & Schuster plan to delay the release of certain digital books for several months to avoid undercutting the sale of best-sellers. "We are giving away the family jewels," says David Young, chairman and chief executive of Hachette Book Group, which publishes authors Malcolm Gladwell and Walter Mosley.
Publishers are typically paid about half the hardcover's retail price, whether a digital book or hardcover is sold. But Amazon has been pushing to pay them less, and many publishers think cheap digital books will open the door to lower industry revenues in the future. Amazon, for its part, says publishers' concerns are overblown. "We are selling a lot of books for publishers. We feel like that relationship continues to be a good one," says Ian Freed, Amazon's vice-president for the Kindle business.
Several publishers are trying to reinvent their businesses before Amazon, or someone else, does it for them. "We are thinking very hard about what opportunities there are to prevent our business from being destroyed," says Young.
Next year Hachette is coming out with a digital version of Sebastian Junger's War that will include video clips, a first for the company. (The book, scheduled for release in May, is based on the author's reporting in Afghanistan and the footage will feature firefights and interviews with soldiers.) HarperCollins is selling a collection of classics on the Nintendo (NTDOY) DS handheld gaming device. Meanwhile, O'Reilly Media, which produces software user manuals, is testing completely new pricing schemes. Instead of selling individual books, it's offering unlimited access to 10,000 titles, videos, and pre-publication manuscripts on the Web for $42.99 a month. "Our mission is not making books," says Tim O'Reilly, the company's CEO and founder. "It's changing the world through spreading the knowledge of innovators."
Young believes people are interested in paying for variations on the standard book, say a single chapter or a searchable database. In late September, two authors, a few editors, and a technologist gathered in Hachette's New York City office to work on an iPhone application based on the popular food book, What to Drink with What You Eat. The heavily illustrated volume will have to be adapted for a screen smaller than a playing card. Gurvinder Batra, chief technology officer of Kiwitech, a Washington (D.C.) startup Hachette hired to develop the app, handed out printed shots of the screen and navigation. "To get to the right info I should not do more than two or three clicks," said Batra.
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