Penguin E-Books Are No. 1 on iPad, But Get Zero Love From Amazon
On the one hand, Penguin (PSO) has many reasons to feel good right now. A preliminary first-quarter earnings report released by its parent company, Pearson, pointed to the Big Six book publisher's "good start to the year" in the U.S. and the U.K., and noted that "growth in demand for eBooks also remains very strong." Meanwhile, Penguin and Apple (AAPL) have begun what appears to be a beautiful friendship, and other online retailers appear to be ready to sell the company's e-books again after a protracted delay.
But then there's that pesky other hand: Penguin still hasn't sorted out its dealings with Amazon (AMZN) -- and the online retail giant is making the publisher pay for it by discounting some of its hardcover editions at rock-bottom prices.
First, more on the good stuff. As data-free as the preliminary earnings report is, it shows some correlation to how Penguin is faring with its e-books on the iPad, which celebrated its one-month anniversary on Monday. According to O'Reilly Radar, which conducts market and statistical research on publishing patterns, books published by Penguin made up 23.5% of all books available through the iBookstore app -- the largest proportion of any publishing entity.
So far, we don't know how having the biggest presence in the iBookstore, which only stocks between 46,000 to 60,000 titles, is boosting Penguin's coffers. But the math has to be in the publisher's favor now that the iPad has crossed the 1 million sales threshold -- just in time for the release of the new 3G version of the iPad -- with 1.5 million e-books downloaded (although I should point out that the numbers are almost certainly inflated by the presence of a great many free e-books or partial samples, and that this averages out to a mere 1.5 e-books per iPad.)
To get stocked by Apple, Penguin, like all other major publishers except Bertelsmann AG's Random House, switched from a wholesale model to an agency model for its e-books: Apple takes a 30% cut of the e-book list price, which allows publishers to steer clear of the $9.99 cap Amazon wanted to establish as the maximum price. The switch was entirely beneficial for Apple, but caused all manner of headaches for all the other e-retailers: They had to adjust pricing, account for state-by-state variation in sales tax collection, and deal with other fun follies. Some publishers, Penguin among them, really wanted all the agreements to be in place by early April to coincide with the iPad's launch. That goal was achieved by some e-retailers; others are still out of luck and unable to stock various publishers' e-books.
Amazon Selling Real Penguin Hardcovers at the Kindle Price
Diesel, an independent e-retailer, relayed some good news to its customers as it signed up its first "A5" (that's Agency Five) publisher, Penguin, and hopes to have its e-books available to sell by the end of this week (though they warn, "we frankly are not holding our breath, as bated is it might be.") Other distributors are rumored to be close to deals that will bring Penguin's e-books back to market. But there's one major player missing from this action, and that's Amazon. Although the retailer now sells e-titles from the remainder of the "Agency Five" - Hachette (LGDDY), HarperCollins (NWS), Macmillan, and Simon & Schuster (CBS) -- they haven't yet renegotiated their deal with Penguin, which expired on April 1. As a result, if you're looking for Kindle editions of the new thriller by John Sandford (published by Putnam) or a reissue from Penguin Classics, you're out of luck.
But Amazon is putting pressure on Penguin -- or at least deeply annoying the publisher -- by pricing a select number of hardcovers at the dreaded $9.99 price which prompted the transition to an agency model in the first place. The Wall Street Journal explained the rationale: "Since Amazon can't sell the digital editions of Penguin's books, it is, in effect, showing its customers that Amazon is still the place to go for discount pricing."
By doing this, Amazon takes a steep loss on hardcover editions of Roger Lowenstein's The End of Wall Street or Anne Lamott's new novel Imperfect Birds. It is increasingly apparent, however, that such tactics underscore the company's belief in its proprietary Kindle books -- which they now claim make up almost half of total sales of a book when both print and digital editions are available -- more than anything else book-related on offer, be it print editions or even actual Kindle devices.
Penguin may shrug off Amazon's gambit for now as it continues to negotiate agency terms with the retailer. But it may not be able to ignore the twist in the knife that comes with Apple's gift-bearing good news: Its agency model agreements are only good for a year, and when April 2011 comes around, the terms may change -- and stab publishers like Penguin in the back.