This afternoon, Marquess Lewis from Pearson spoke to the MS-MBA students at BU. Among many other topics, he talked briefly about who should set prices for e-books (publishers or retailers). This debate has taken a lot of turns over the past two weeks with the introduction of the iPad and the very public disagreement between Amazon and Macmillan.
This morning, Warner Music Group CEO Edgar Bronfman Jr. offered up a new piece of information. According to Bronfman, digital music downloads (measured in legal units) have slowed considerably since Apple gave music labels the freedom to set prices (within an Apple-defined range). However, despite this decrease in unit growth, Bronfman estimates that the variable pricing model has still been a net benefit to the company.
Given this, publishers must assess the impact that this newfound pricing freedom will have on its own market. While there are many differences between digital music and e-books, one key difference may be the maturity of each market. Many publishers may argue that this freedom will give them the opportunity to set pricing expectations early, before the mass market transitions from print to digital. However, other outcomes are possible. During the growth phase of nascent markets, the relative advantage (measured by the ratio of expected benefits to the cost of adoption) tends to be a key predictor of consumer adoption. A 50% increase in e-book prices (from $9.99 to $14.99) may therefore have dramatic impact on the adoption rate (in addition to decreasing consumption by current e-book consumers).
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