Why Apple's Court Battle May Not Lead to Cheaper E-Books

The Barnes & Noble Nook, left, and the Amazon Kindle Paperwhite.
Patrick Fallon | Bloomberg | Getty Images
The Barnes & Noble Nook, left, and the Amazon Kindle Paperwhite.

The outcome of Apple's court battle with the Department of Justice over e-book pricing may not mean much when it comes to what consumers pay for digital texts. Prices have been steadily trending downward.

The DOJ settled last year with the six major publishers—HarperCollins, Simon & Schuster, Penguin, Hachette, Macmillan and Random House—it had alleged conspired with Apple to keep e-book prices elevated.

Since late October, as many of those publishers sign new agreements with book retailers, the average price of a best-selling e-book has dropped from an average of $11.79 to $6.95, according to Digital Book World, an industry group.

"What we're seeing is a pricing free fall, and I don't see any source that's putting the brakes on that," said Peter Hildick-Smith, president of research firm Codex-Group.

Publishers' new deals give e-book sellers like Amazon and Barnes & Noble more flexibility to temporarily cut prices to boost sales. Readers who can time the deals may be able to save 50 percent or more off the book's usual price.

For example, Amazon recently offered the Kindle version of "The Third Wheel (Diary of a Wimpy Kid, Book 7)" for $1.99, a 75 percent discount off its previous price of $7.94. To nail the timing for such flash sales, sites such as BookBub.com and eReaderIQ.com aggregate offers, noting freebies, daily deals and other big price drops.

A growing number of self-published titles have also led to more low-priced offerings on the market. "Because e-books aren't subject to the same economic constraints as a print book, you can publish a few thousand words and sell it for 25 cents or even free," said Michael Norris, a senior analyst for Simba Information, a publishing market intelligence firm.

A May survey of self-published e-books from distributor Smashwords found that price points of $5 and up have "lost favor" over the past year. And increasingly, those cheap e-books prove popular enough to land on best-seller lists. "A year ago, that was really rare, two years ago, it was unheard of," said Mark Coker, Smashwords' founder .

But although consumers may see more low-priced books, e-book prices may not fall too much further—even if Apple loses in court. Publishers' costs to produce e-books are lower compared with print books, but regularly cheap e-books don't leave much room for profit, Hildick-Smith said.

That's true for self-published titles, too. According to the Smashwords survey, last year's most popular price point was 99 cents; this year, it's $2.99. "High-quality authors do want to be compensated for their work," said Coker.

The rise of tablet computers may further limit e-book price drops. "You may spend 18.5 hours a week on an iPad, but just an hour or two of that reading," said Hildick-Smith.

Consumers with e-readers read 50 percent of their materials in a print format and 50 percent digital, according to Codex-Group data. Among tablet owners, the split is closer to two-thirds print, one-third digital. That requires publishers to balance pricing so that readers who want a paperback are still enticed to buy, Norris said.

_ By CNBC's Kelli B. Grant