Wednesday, March 24, 2010

Random House opts out of iBookstore for now; fears they just can't help themselves, will cut prices too low

Random House has decided to stay on the sidelines for the launch of Apple's new iBookstore. Their worry? That Apple's agency model, where book publishers set their own prices, will lead to the publisher cutting their prices, thus reducing margins.

Set to launch April 3 in conjunction with the arrival of the first iPad tablets, the iBookstore uses an "agency" model where publishers set their own prices.  The publisher gets 70 percent of sales, while Apple pockets a 30 percent commission.  This is the model Apple has used for its iTunes app store to great success. HarperCollins, Hachette, Penguin, Macmillan and Simon & Shuster have already signed on.

According to the Financial Times (sub. req.) Random House chief executive, did not exclude the possibility of reaching a deal before the iPad goes on sale on, but said the company "was treading carefully" fearful the new sales model would erode margins.

Thanks to sales from mega blockbusters like Dan Brown's The Lost Symbol and Stieg Larsson's The Girl with the Dragon Tattoo Random House was able to post sales for 2009 that were basically flat against the prior year. "With no sustained worldwide economic upturn in sight, we are facing another tough year, with very cautious, highly selective booksellers and book buyers," Mr. Dohle wrote in an internal memo, according to Crain's New York.

Ironically, Random House's chief executive also wrote that “it is imperative for us to grow both [the digital and print formats] simultaneously.”
(Updates after the jump.)

Update 1: Bloomberg has posted this video of a conversation with Nick Ciarelli, technology writer for The Daily Beast, about strategy Amazon and Barnes & Noble are employing in the wake of the iPad -- which is basically to create their own iPad apps.

Update 2: This site claims that they have seen some of the iBookstore pricing firsthand and reports that iBookstore pricing appears to be very competitive with Amazon's Kindle pricing. I wouldn't read much into this as it is possible that there is a default price Apple designates. But if book publishing is your game you are probably eager to hear the latest, whatever the source.