For those of you (including me) looking to buy a Kindle or Nook this Christmas season, beware of the increased prices of E-Books
E-Book Readers Face Sticker Shock-From The Wall Street Journal
Cheap new e-readers are expected to be one of the hottest gifts this holiday season. But new owners of Kindles and Nooks may be in for sticker shock on Christmas morning: The price gap between the print and e-versions of some top sellers has now narrowed to within a few dollars—and in some cases, e-books are more expensive than their printed equivalents.
When Amazon.com Inc. introduced its first Kindle e-reader back in November 2007, the $9.99 digital best seller was a key selling point. Today, the price of a Kindle has plummeted to under $100—from $399 back then. But e-book prices for some popular titles have soared.
Take Ken Follett's massive novel "Fall of Giants," for example, which costs $18.99 as an e-book. On Wednesday it was selling for $16.50 as a paperback on Amazon.
The digital price increases are the result of a decision by the six biggest publishers to set their own consumer e-book prices, a move that effectively bars retailers from discounting their e-books without permission. No such agreement exists for printed books—where retailers are free to set their own prices. So while a best-selling e-book price is often less than half of the hardcover price, heavy discounting of the print version closes the gap.
Industry executives say this new state of affairs may already be hurting e-book sales, which have skyrocketed over the past three years and are today 15% to 20% or more of major publishers' revenue.
"Some people who see $12.99 and $14.99 for e-books may find those prices a little expensive," says Scott Waxman, a literary agent and digital-books publisher.
For best-selling authors like James Patterson, "people may feel that if they aren't getting a bargain, at least they are getting convenience and portability," Mr. Waxman says. But he's less convinced people will shell out for lesser-known writers.
Mark Weaver, a New Yorker who owns an iPad 2 and used to have a Kindle, says he is "definitely buying fewer" e-books because of higher prices. "It's hard to justify the purchase of e-books that are priced at $10 to $15 when you can buy the real book on Amazon used for $2 or $3," he says.
Experts say higher prices could cause some digital consumers to turn to piracy sites. "We don't have data that directly correlates higher e-book prices to higher rates of piracy, but the piracy rate per title has grown exponentially over the last 12 months," says Matt Robinson, president of Attributor Inc., a leading antipiracy provider to the book industry.
To be sure, most e-books are still cheap. Yankee Group, a Boston-based research firm, says that the average price of a consumer digital book has fallen to $8.19 this year from $9.23 in 2009. Lagardère SCA's Hachette Book Group says that 83% of its digital titles are priced at $9.99 or below.
But for many of the country's most popular titles, consumers are paying more.
Laura Hillenbrand's nonfiction adventure tale "Unbroken" sells for $12.99 in digital form but $13.98 in hardcover on Amazon. Walter Isaacson's best-selling biography of Steve Jobs retails for $14.99 in e-book version, compared with the $17.49 hardcover available at Amazon and online at Wal-Mart Stores Inc.
It was Mr. Jobs himself who wanted to level the playing field for e-book pricing. Early last year, as Mr. Jobs, then CEO of Apple Inc., planned for the launch of the iPad, the company wanted to start an e-book store so that iPad owners didn't have to rely on Amazon's Kindle store to buy e-books.
But Apple didn't want to have to compete with Amazon's discounted prices. Under Mr. Jobs's direction, Apple persuaded five of the biggest publishers to abandon the wholesale model, by which retailers were free to discount the recommended retail price. Under the new pricing arrangement, publishers set the price of e-books.
In March, Random House Inc., a unit of Bertelsmann AG and the country's largest consumer book publisher, joined its five large rivals in adopting the no-discounting digital pricing model.
The Justice Department confirmed last week that it was investigating whether there was improper collusion between the publishers and Apple to prevent discounting. Publishers last week either disagreed with the allegations, said they were cooperating with regulators or declined to comment. Random House said it isn't part of the probe and otherwise declined to comment. Apple declined to comment at the time.
Ironically, though, publishers make less money with the arrangement. The six publishers which use this model today include Random House; Hachette; Macmillan, a unit of Germany's Verlagsgruppe Georg von Holtzbrinck GmbH; Simon & Schuster Inc., a unit of CBS Corp.; Pearson PLC's Penguin Group; and HarperCollins Publishers, a unit of News Corp., which also owns The Wall Street Journal.
Under the old book arrangement, major publishers charged the same wholesale price for e-books as they received for hardcovers. For a new novel priced at $25, for example, they received $12.50 for the e-book and $12.50 for the hardcover. When Amazon.com discounted the e-book at $9.99, Amazon took the loss.
But under the new pricing model, a $25 hardcover is often priced at $12.99 for the e-book. And because publishers receive 70% of the e-book retail price—while retailers retain 30%—that means publishers receive only $9.09. Publishers were willing to accept the lower profits because they felt the new arrangement preserved the value of books and encouraged other retailers to enter the e-book market.
Indeed, the new arrangement means guaranteed profits on best-selling titles for retailers like Barnes & Noble Inc., which today claims about 27% of the digital books market, as well as Amazon.
Even so, Amazon warns the arrangement has slowed the growth of the e-book market. Russell Grandinetti, Amazon's vice president of Kindle Content, says the growth rate in dollar terms for publishers using the traditional wholesale model that allows discounting is significantly higher than that of publishers that don't allow discounting.
Mike Shatzkin, chief executive of Idea Logical Co., a New York-based publishing consultancy, says that he expects e-books will account for 30% to 35% of all revenue for the country's largest publishers by the end of 2012. That growth may also reflect wider penetration of e-readers in the population.
James McQuivey, an analyst at Forrester Research, estimates that at least 20 million U.S. households will own a dedicated e-reader, like a Kindle or Nook, by year-end—compared with just over 10 million last year. Another 17 million tablets will be sold here this year, up from 7.6 million last year, the Yankee Group says.
Publishers believe that e-books are priced correctly and say consumers have shown that they are willing to pay $12.99 for a digital best seller.
"What that tells me is that there has been a change in the understanding of the value of a digital book, and that a digital book has advantages over a physical book in some cases," says Maja Thomas, a senior vice president of Hachette Digital. "It's instantaneous, it's portable, it's minimal in terms of storage, and it can be retrieved from all kinds of places and devices. It's also searchable, and it's easy to take notes and retrieve them."
Other publishing executives acknowledge price is an issue. John Makinson, chief executive of Penguin Group, says Penguin has seen some price resistance at the higher end, such as the $18.99 that it charges for the digital edition of Mr. Follett's "Fall of Giants."
"Some of the issue is that digital customers can't see how large the book actually is," he says.
Mr. Makinson agrees that lower prices result in higher unit sales. But he says the revenue generated by those increased sales doesn't make up for the lost revenue from sales at higher prices. Lower pricing also negatively affects income for authors dependent on royalty payments, he says.
Lorraine Shanley, a publishing industry consultant, says higher digital-book prices may lead some consumers to try self-published works. "If you really want a book, you'll pay the $12.99 or $14.99," she says. "But price is definitely an issue for consumers. At some point, they may say they're willing to try a generic $2.99 mystery that has five stars from readers."
2) In the Markets today:
Stocks gained after investors took heart from stronger U.S. economic data, snapping a three-day losing streak, but finished off session highs after another warning about Europe's sovereign-debt crisis.
Stocks Break Losing Streak-From The Wall Street Journal
Stocks gained after investors took heart from stronger U.S. economic data, snapping a three-day losing streak, but finished off session highs after another warning about Europe's sovereign-debt crisis.
The Dow Jones Industrial Average rose 45.33 points, or 0.4%, to 11868.81. The Standard & Poor's 500-stock index tacked on 3.94 points, or 0.3%, to 1215.76, and the Nasdaq Composite eked out a gain of 1.7 points, or 0.1%, to 2541.01. The defensive utilities, health-care and consumer-staples sectors posted the strongest gains as investors edged back into stocks after three days of losses.
The number of initial jobless claims filed in the U.S. last week was the lowest since May 2008, the Labor Department said, the latest indication of a strengthening jobs market. Also helping sentiment, a gauge of mid-Atlantic manufacturing activity jumped for December versus the prior month.
But the blue-chip Dow pared a triple-digit gain midsession after International Monetary Fund chief Christine Lagarde called the global economic outlook "quite gloomy" and urged international help in resolving Europe's sovereign-debt crisis.
"Europe can have a recession that doesn't drag the U.S. into it," said Howard Ward, portfolio manager at Gamco Growth fund. "It's important for people to understand that we will certainly be impacted in a negative way by the slowdown in Europe. But that doesn't mean that we're going to have a recession as well."
The euro gained slightly versus the dollar after dropping to its lowest point since January the previous session. European markets finished higher, with the Stoxx Europe 600 up 1%, boosted by better-than-expected euro-zone manufacturing data and a successful Spanish bond auction.
Asian exchanges fell, with China's Shanghai Composite shedding 2.1% to its lowest close since March 2009. Data showed China manufacturing activity contracted again in December, although at a slower rate than in November.
Gold futures lost 0.6% to $1,574.60 a troy ounce after plunging 4.6% Wednesday, while crude-oil futures lost $1.08 to settle at $93.87 a barrel, the lowest in more than a month.
Merck was the strongest stock in the blue-chip Dow, rising 2.3%, followed by Travelers, which gained 1.5%. Pfizer was also strong, rising 1.3%.
Novellus Systems was the biggest advancer in the S&P 500, rallying 16% after the company agreed to be acquired by fellow chip-equipment maker Lam Research in an all-stock deal that values Novellus at about $3.3 billion. Lam shares slipped 8.4%.
Fed Ex was the measure's second-strongest stock, climbing 8% after the package-delivery service reported fiscal second-quarter earnings that exceeded expectations and affirmed its full-year outlook.
Discover Financial Services was one of the S&P 500's biggest decliners, shedding 3%. The company's fiscal fourth-quarter profit jumped a better-than-expected 47%, but investors expressed concerns that credit improvements have run their course.
3) Top financial story of the day:
A drop in new unemployment filings to a three-and-a-half-year low offered the latest indication of an improving labor market, but a drop in U.S. industrial output last month highlighted vulnerability to shocks.
Jobless claims falling, Nov. wholesale prices in check-From AP
The outlook for the U.S. job market is looking brighter. Far fewer Americans are seeking unemployment benefits than just three months ago — a sign that layoffs are falling sharply. And inflation at the wholesale level in November rose modestly, a sign that inflation remains well in check.
The number of people applying for benefits fell last week to 366,000, the fewest since May 2008. If the number stayed that low consistently, it would likely signal that hiring is strong enough to lower unemployment.
The unemployment rate is now 8.6%. The last time applications were this low, the rate was 5.4%.
The big question is whether fewer layoffs will translate into robust hiring. It hasn't happened yet, even though job growth has been rising consistently each month.
The four-week average of weekly unemployment applications, which smooths out fluctuations, dropped last week to 387,750. That's the lowest four-week since July 2008. The four-week average has declined in 10 of the past 12 weeks.
Applications for unemployment benefits are a measure of the pace of layoffs. Job cuts have fallen sharply since the recession, but so far employers are hiring at only a modest pace. When applications fall below 375,000 — consistently — that usually signals that hiring is strong enough to lower the unemployment rate.
The downward trend suggests that companies are cutting fewer workers as the economy picks up. It also comes as Congress is wrangling over whether to extend emergency unemployment benefits, which are set to expire at the end of this year.
Growth may top 3% at an annual rate in the final three months of this year, according to many economists. That would be up from 2% in the July-September quarter.
Other recent reports suggest the job market is improving a bit. In the past three months, net job gains have averaged 143,000 a month. That compares with an average of 84,000 in the previous three months.
In November, employers added 120,000 jobs, and the unemployment rate fell to 8.6% from 9%. That was the lowest unemployment rate in 2½ years. But about half that decline occurred because many of the unemployed gave up looking for work. When people stop looking for a job, they're no longer counted as unemployed.
But the economic outlook clearly remains mixed. U.S. factory output declined in November for the first time in seven months as auto production slowed. In another report out Thursday, the government said wholesale prices rose a modest 0.3% last month as companies paid more for such items as food and pharmaceuticals. But energy prices barely rose, keeping inflation in check.
In the 12 months ending in November, wholesale prices have increased 5.7%, down from a 5.9% year-over-year pace in October, the Labor Department said. It's the smallest yearly increase since March.
The department's producer price index measures price changes before they reach consumers.
Excluding the volatile food and energy categories, the so-called "core" index rose 0.1%, after a flat reading the previous month. In the 12 months ending in November, the core index rose 2.9%, up from a yearly pace of 2.8% in October.
Most economists say they think inflation has peaked and will slowly decline next year. That's because prices for oil and many agricultural commodities have fallen from their highs this spring. Slower growth in China and a possible recession in Europe have reduced global demand for energy and other goods.
Lower price growth means consumers will have more buying power, potentially boosting consumer spending. The jump in gas and food prices earlier this year limited the ability of consumers to buy other goods, thereby slowing the economy.
Consumer spending rebounded in the July-September quarter as prices eased. The stronger spending helped increase growth to an annual rate of 2% from a slight 0.9% in the first half of the year.
Economists expect consumer spending to rise again in the last three months of this year and think growth could top 3 percent.
Federal Reserve policymakers, like many private economists, predict inflation will fall next year. That would give the central bank more latitude to hold down interest rates and potentially take other steps to stimulate the economy.
The Fed declined to make any new moves at its latest meeting Tuesday. It reiterated its commitment to keep the benchmark short-term rate it controls at nearly zero through mid-2013. If there were signs that inflation was increasing to worrisome levels, the Fed would likely raise rates.
The central bank said last month that it expects consumer inflation to fall from about 2.8% this year to roughly 1.7% next year. That's in the Fed's preferred range of core inflation of about 1.7% to 2%. Economists at Wells Fargo expect it to drop to 1.8% by the end of next year.
A small amount of inflation can be good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.
4) Quote of the Day from Dave Ramsey.com:
Many of us spend half our time wishing for things we could have if we didn't spend half our time wishing. — Alexander Woollcott
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