Until recently, Amazon and its Kindle were the only real e-reader game in town. This allowed them to force on publishers an arguably arbitrary (and low) price of $9.99 for bestsellers. With the introduction of Apple’s iPad, however, publishers now have a viable competitor to which they can defect. The result will likely be higher e-book prices in the near term, and this has prompted some point out that this is a case where more competition resulted in higher prices for consumers.
The key phrase in the previous paragraph, however, is “near term.” It’s interesting to see that five years after it began offering video in the iTunes store, Apple is apparently pushing TV producers to lower their prices by half from $1.99 an episode to 99¢. Market processes–especially those surrounding new technology and distribution channels–can be less than instantaneous, but they have a way of ultimately conforming to economic reality.
Reporting on the ongoing negotiations with Apple, the New York Times says, “Television production is expensive, and the networks are wary of selling shows for less.” But the economic reality they’re missing is that TV production is a fixed cost, and as my friend Tim Lee has pointed out many times, the marginal cost of digital distribution is basically zero. As a result, I wouldn’t be surprised if five years from now, we’ll see Apple badgering book publishers to cut their prices in half.