Apple must apply 'right price, right rights' model to e-books

There are many reasons why iPod and iTunes Store succeeded where competing products failed. But two reasons stand out: Right price, right rights. If iBookstore is to succeed, Apple must apply the same model to e-books and other publications sold there. CEO Steve Jobs and company must seize control of pricing during content negotiations -- and, more importantly -- rights. There must be a single (and generous), standard usage right for all titles, including magazine and newspapers.

When Apple launched iPod in October 2001, the "right price, right rights" model was the best possible: Free. Music labels hadn't locked down CDs with onerous digital rights management mechanisms. Therefore, people could rip music and make their own "mixed tapes" CDs. Meaning -- people buying iPod already owned content they could put on the device. Apple wisely chose not to restrict music copying to iPod. The price was free and the rights were unrestricted.

Other MP3 manufacturers should have benefitted from the same price and rights advantage, but poor PC synchronization plagued many devices. I know. I tested enough competing devices and media playback software in the early "Noughties" to see the problem. By comparison, iPod-iTunes sync worked right from Day One. Apple offered a better user interface -- on the device or from the MP3 software.

When Apple launched iTunes Music Store in April 2003, it did so with uniform pricing and seemingly transparent rights. Singles sold for 99 cents and albums for $9.99. Both prices were magical and right on target, based on consumer surveys conducted by colleagues at JupiterResearch (I was a senior analyst there from 2003-2006). Both prices were lower than CD singles or albums. The rights: Consistent among all tracks with CD burning three times for any playlist and generous copying to iPod.

By comparison most other digital music stores available then and soon after applied variable pricing and rights mandated by publishers. Varying rights usage -- as in how many times a song, album or playlist could be burned/copied to device or not at all -- corrupted the user experience. Consumers would buy one song that could be burned once, another song three times and yet another not at all. In my testing of music services and software during the early to mid Noughties, varying rights posed another problem: Synchronization. There were consistent problems syncing DRM content -- particularly from different music stores -- to music players or burning to CDs. These problems largely contributed to the failure of Microsoft's PlaysForSure program.

Apple revolutionized digitally downloaded music by standardizing price and rights for DRM content. Consumers already had consistent pricing and rights from the stuff they owned -- or stole from file sharing sites. Apple increased those rights over time, later to five burns per playlist. In February 2007, Jobs called for the end of DRM in an open letter. Publishers would later give broad DRM freedom to Amazon's competing music store, as leverage against Apple's growing distribution dominance.

Today, iTunes music rights are ubiquitous; there is no DRM, so no restrictions. Pricing is variable, however, a concession Apple reportedly made to music labels. In my testing, iTunes Store variable pricing means that buyers pay more than AmazonMP3 store for many singles or albums. I won't defend the practice, but must point out that Apple could much easier implement variable pricing as a leading music distributor than as one starting out seven years ago. Apple is starting out again, now with e-books.

Mistakes will Haunt Apple Customers

The pricing and rights mistakes Apple makes now will haunt iBookstore shelves for years. These apparitions will terrorize consumers browsing the stacks, and no "Ghostbusters" will be able to save them. Apple must get pricing and rights right from Day One, as it did with iPod and iTunes.

Amazon clearly understands the importance of the "right price, right rights" model -- at least applied to e-books. Its approach to selling otherwise free content (like blogs) or newspaper and magazine subscriptions is a more troubled scenario. Until recent, forced renegotiations, Amazon sold popular and new releases for the uniform price of $9.99. Usage rights are consistent, even if restricted compared to physical books. Generous personal usage rights allow buyers to download and redownload e-books pretty much to any device -- Kindle, PC/Mac or smartphone -- authorized by Amazon's software. Amazon offers consistent lending rights: None. Consistency helps curtail consumer confusion, but none isn't enough rights compared to physical books.

Barnes & Noble offers one-time lending rights for its e-books -- kind of. Publishers still control usage rights, which means some titles can't be digitally lent at all. The rights are restrictive and confusing.

Apple has opportunity to do for e-books and other e-publications what it did for music. I'm simply stunned that for all the online rumors and speculation about iPad, so little of it is about right price and right rights. Apple has a chance to fundamentally change the e-book/e-pub model, but that won't likely happen if publishers dictate terms. Amazon was right to seek consistent pricing, either working with publishers or around them. Apple should do better, and out-of-control iPad hype is leverage Jobs and his negotiators should use.

Apple should be cautious about adopting App Store pricing. Rights are fairly consistent, but developers set prices -- or try to. App Store buyers and fierce competition have driven pricing largely to free or 99 cents for the majority of popular applications. Regardless, App Store is a fundamentally different business model. For the market of software applications, there are tens of thousands of competing developers -- that despite dominance of a few giants like Microsoft.

Publishing distribution, including books and music, is largely dominated by a few big publishers or organizations. Microsoft sells software it owns, which people can buy or not from many places. But book and music publishers typically obtain rights to content they didn't create but can distribute through long-established and limited channels. When moving away from DRM, some music labels initially shut out Apple from DRM-free content. Publishers of the written word have similar clout.

The time for Apple to lock in the right price and right rights is now. What's right? It's probably what publishers won't want to give: $9.99 for e-book versions of new or popular hardcovers, ubiquitous personal usage rights for any device supporting iBookstore and non-restrictive lending to authorized accounts. Where Apple has DRM today, five authorized PCs/Macs remains the usage rights. Apple should strive for the same usage rights for e-books -- and more: Five authorized devices and/or unlimited lending among family members (which could be verified through MobileMe family account).

So I must ask: What price would you pay for e-books and with what usage rights? Please answer in comments.