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.