Earlier in the week the Justice Department sued 6 major publishers and Apple in a price fixing scandal on ebooks. While Apple and Penguin continue to fight the case, Simon & Schuster, Hachette Book Group, and Harpercollins decided to settle. This will create a cascading effort that will affect the Barnes and Noble ebook store.
The announcement of the settlement sent Barnes and Noble’s stock down 6.4% of its market value on Thursday. Most people in the industry belive that the nations largest bookstore may suffer because Amazon is willing to take a strong loss on the sales of ebooks in order to gain market share. “This is a huge problem for Barnes & Noble,” said Forrester analyst James McQuivey. “Amazon is building a tremendous customer relationship that they can monetize across many categories of goods, not just books. Even if they decide to take a hit on e-books, they can find other places to make up that margin. Barnes & Noble doesn’t have that same luxury.”
The main problem is that Barnes and Noble has a bloated retail chain and has to see a certain element of profitability on its entire digital division in order to remain relevant in a changing landscape. The Wall Street Journal noticed on Thrusday that B&N was selling an e-book edition of “Guilty Wives” by James Patterson and David Ellis for $12.99. Under the current pricing model, Barnes & Noble makes 30%, or $3.90. But once the book is discounted, it’s possible that Barnes & Noble might have to take a loss on each sale, depending on how sharply others discount.
Amazon undoubtedly is in the best position to take advantage of renewed contracts between the publishers that recently settled their cases with the Justice Department. Not only can they once more buy a large number of ebooks in bulk and then sell the books cheaper than anyone else, but they are also launching their own publishing imprint.
Barnes and Noble in the short term may not see much of a loss on their digital content like ebooks, but they may feel the pain when new contracts are negotiated and how other stores discount their prices of books. The company today unveiled a new Nook Simple Touch with Glow Light that may stimulate stagnant sales of their e-reader line. Many people are attracted to the Nook line of e-readers because they all run Google Android and allow a tremendous amount of flexibility in loading in Apps and rooting them.
via Wall Street Journal