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“I think we are worried more about the absolute holdback of product elsewhere, and our ceding of pricing to Apple, than we are about the actual haggle over what the prices will be.”
Steve Jobs continued his attempt to persuade Murdoch into collusion. He claimed that Apple only wanted to make a slim margin on e-books, as they did with iTunes. Jobs claimed that the savings would go to the customer:
“Apple is proposing to give the cost benefits of a book without raw materials, distribution, remaindering, cost of capital, bad debt, etc., to the customer, not Apple. This is why a new release would be priced at $12.99, say, instead of $16.99 or even higher. Apple doesn’t want to make more than the slim profit margin it makes distributing music, movies, etc.”
It is true that iTunes does not make a huge profit.
However, a book that costs $12.99 instead of $9.99 is not a great bargain for the customer.
Jobs claimed that Amazon would create an e-books market that would hurt the bottom line for both publishers and authors. Shortly after mentioning how the pricing structure would benefit customers, he claimed it would benefit publishers and authors:
“As for the artists, giving them the same amount of royalty as they make today, leaving the publisher with the same profits, is as easy as sending them all a letter telling them that you are paying them a higher percentage for ebooks. They won’t be sad.”
Murdoch doesn’t fall for this. He responds to Jobs, informing him that publishers and authors make money with Kindle. Murdoch points out that only Apple benefits from the cost-savings from e-books:
“The economics are simple enough. Kindle pays us a wholesale price of $13 and sells it for $9.99. An author gets $4.20 on the sale of a hardcover and $3.30 on the sale of the e-book on the Kindle. Basically — the entire hypothetical benefit of a book without raw materials and distribution cost accrues to Apple, not to the publisher or to the creator of the work.”
Murdoch also adds that they don’t want Apple to dictate that HarperCollins cannot sell an e-book to a particular retailer:
“The other big issue is one of holdbacks. If we can’t agree on the fair price for a book, your team’s proposal restricts us from making that book available elsewhere, even at a higher price.” (continue…)