Barnesandnoble.com: Gladiator in the E-Book Arena

Barnesandnoble.com took a direct swipe at publishers Thursday by making several aggressive moves into the electronic-book arena. The company wants to develop a market for e-books, which has so far been a minuscule business.

The online bookseller announced its new digital-publishing imprint that will pay authors the highest royalty rate in the industry, as well as sell e-books at prices lower than most other publishers charge.

"It's an empirical fact that e-books don't have the same perceived value as hardcover books," says Michael Fragnito, VP of the digital-book group at Barnesandnoble.com, a public company that is 40 percent owned by the bookstore chain Barnes & Noble (BKS). "We have to bring the price down to help build this market."

Barnesandnoble.com says that whenever a title also is available in print, the e-book version would be less expensive than the print edition.

That kind of talk has angered some publishers, who think that by selling e-books for as little as $5.95, Barnesandnoble.com will reduce the value of all books.

"That is going to continue to cause lower perceived value for e-books, and I think it's going to severely affect the economic model of publishing," says one publishing executive who did not want to be identified.

Barnesandnoble.com says it's only fair to charge less for e-books, since publishers save the costs of printing, shipping and storing print books. But publishers counter that in the short run, electronic publishing is not cheaper because building the industry requires higher marketing costs, as well as huge technology expenses.

Publishers are also concerned that Barnesandnoble.com's royalty rate of 35 percent of the retail sale price will prompt authors to sell the electronic rights to their manuscripts separately. That could create a situation in which a mainstream publisher issues a print version of a book while an electronic version of the same title becomes available simultaneously for a much lower price.

At least for now, Barnesandnoble.com won't tread too heavily on the turf of mainstream publishers. Instead, it will focus on publishing electronic versions of previously released titles, books that have gone out of print and books in the public domain. However, one of Barnesandnoble.com's first e-books will be a new work from horror writer Dean Koontz. Koontz's usual publisher, Random House (dossier), declined to comment.