An Analog Problem With Digital Books

Looks like the Justice Department is taking an interest in the pricing of e-books by major publishers. The Wall Street Journal’s Jeff Trachtenberg had the story yesterday, and the New York Times followed up this morning. DOJ is threatening a suit over the “agency model” of e-book pricing, in which the publisher sets the retail price and nobody is allowed to undercut it. Until a couple of years ago, e-books were sold under a “wholesale model,” in which the publisher sells for a set wholesale price, usually about half the “suggested” cover price, and retailers can discount however they like. (Physical books are still sold this way, which is why you frequently see an e-book that costs more than a paper one.)

DOJ is investigating Apple and five major publishers (curiously, the largest one of all, Random House, is not listed; at first they balked at the “agency model,” but came around a few months later). Very broadly, they want to find out if the companies acted in collusion to prop up the retail price of e-books. I can give them a quick answer: yes, they did. But is that illegal? Here are the warring points of view:

Publishers: By deeply discounting our e-books to $9.99, below its cost, Amazon was deliberately trying to establish dominance and reduce competition, which could hurt everybody in the long run: if they were the only e-bookseller, they could raise the price as high as they wanted. Also, e-books are eating into our sales of physical books – our very business model is at stake.

Apple: Damn right. And Amazon is the big kahuna. (For the first time ever, we were a little late to this e-book party.) Level the playing field and stop these birds from using your product as a loss leader.

The Customer: What happened to our $9.99 e-bestsellers? You don’t have to print, bind, stock, ship or accept returns on them. $15.99 is an absurd price you just pulled out of your posterior.

DOJ: Yeah! Aren’t you guys all going into a huddle and setting prices? That’s a no-no, and it’s anti-consumer.

Publishers: No way! Each publisher is free to set whatever price it wants. It’s just become a floor, not a ceiling.

Amazon: Man, you’re foolishly dampening the only bright spot in the book business. And if it weren’t for our Kindle, you’d still be looking for a savior. If you depend on Apple for largesse, just remember what happened to record stores, back when Steve Jobs contended that keeping prices down was a good thing.

Literary Agents: Our clients’ compensation is based on a percentage of a sale price. Reduce the price and you reduce our clients’ earnings. Oh yeah, ours too.

Publishers: Yeah! We have to think about our beloved authors!

Amazon: That doesn’t seem to bother you on real books, where the free market works just fine.

Self-Published Authors: This just in: if you’re good, you can make a living selling e-books at $4.99, and to hell with all of you. If you’re no good, you weren’t gonna get a book contract anyway, especially since the big houses have basically given up on the midlist, and their last big idea was to use social networks for publicity. Well, duh.

DOJ: <Points two fingers at its eyes and then back to the publishers>

The Customer: Hey, gang, I’m still here. But maybe not for long.

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9 Responses to An Analog Problem With Digital Books

  1. Keith West says:

    Your last line says it all. I predict that the player who focuses most (or best, not necessarily the same as most) on the customer will come out on top.

  2. Jenny says:

    Ironically, Random House stayed on the wholesale model for a year banking big $$ from Amazon and only adopted the agency model when the iPad 2 launched. So, they are not part of the investigation and they had a year’s windfall. Worked out well for them.

  3. GinBerlin says:

    Authors were being paid based not on what Amazon was selling at, but on what the books were being listed at. As authors and Amazon said at the time. Amazon was eating the differential to sell its hardware and increase volume.
    I will point out that in Germany, where the large publishing houses are attempting to get the (cheap) populace to buy in to e-reader’s the publishers are allowing e-book prices to be set much lower. In a country where the prices of physical books are kept high as discounting is not allowed on new books.
    So I am better off buying my dead tree books in the US or UK and shipping them here, but buying my English language Kindle/ e-books in Germany.
    Funny world.

  4. Michael says:

    Herein lies the problem. Greed. Much like newspapers and mail delivery, physical book sales are down and publishers need to adapt or die. They should have slowly shifted their model into e-books as more and more people adopted eReader technology. They would be ahead of the gmae by now. The cost to deliver books in digital format is unquestionably much lower then printing, and I would think the profit much higer.

    Its about time that top authors start self-publishing their books. Cut out the middle man.

  5. Tom Dupree says:

    From Sweet Potato Queen Jill Conner Browne via Facebook:

    The Bigs had/have no problem discounting books to the Big Boxes so much that it became cheaper for Indies to go to WALMART to purchase books–rather than from Ingrams or other distributors. Those heavy discounts also penalize AUTHORS because past a certain level, the books are not royalty copies. This is a FINE MESS!

  6. debooker says:

    Traditional publishers are trying to drive customers away from e-book sales, which is a big mistake. Why? It reduces their control over the author’s material. Plus, they have to pay the big royalties to the blockbuster authors on their lists and they can’t do that if the price gets too low.

  7. debooker says:

    Reblogged this on Booker's Blog and commented:
    Some insight worth reading concerning e-books.

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