E-Book Prices Headed Back Down?

The Wall Street Journal reports today that at least three of five large publishers — Hachette, HarperCollins and Simon & Schuster — have agreed to settlle a DOJ lawsuit alleging e-book price collusion. Part of the settlement stipulates that the publishers will not prevent discounting of e-books for two years. This means that we could soon see the return of $9.99 e-bestsellers.

Among the government’s contentions is that competing publishers regularly met with each other over this matter in restaurant private rooms. I can believe that. John Sargent of Macmillan, which denies collusion, is adamant that he made his decision to migrate to Apple’s “agency model” (in which the e-retailer takes a flat fee and cannot discount books below the publisher’s price) by himself, on his exercise bike, “the lonelist decision I have ever made.” I can believe that too. But the combined action, spurred on by Apple, unilaterally raised consumer prices across the board. Pearson, which was also named in the suit, has not responded. Random House, the largest publisher, retained the “wholesale model” (in which the e-bookseller pays approximately half the retail price and can then discount further if it likes; physical books have always been, and continue to be, sold this way), and made tons more money, for about a year, only adopting the agency model at the release of the iPad 2. Thus it was not party to this lawsuit and had no comment.

Who wins? Who loses? Well, the consumer will pay less if Amazon — which has wisely kept its corporate mouth shut during this whole affair — continues to price e-bestsellers as “loss leaders” to bolster the market share of its Kindle family. Apple, which never much cared about books anyhow (“People don’t read anymore” — Steve Jobs, quoted in the New York Times on 1/15/08), may find a way to keep the Kindle app off future iterations of its hardware, but that would truly be turning away a feature beloved by many of its users. (But then, making them mad over Adobe Flash didn’t bother the company at all.)

If book publishers are worried that a $9.99 e-price point devalues their product, they can console themselves with the fact that Amazon is losing money on every current bestseller sold at that price, and the publisher is making more on each sale than it would under the agency model. Plus, the villain in any future e-book price creep, an uncomfortable role largely foisted on the publishers by Apple, will now be the retailer: e.g., Amazon. No longer will it be able to shrug and say its hands are tied with the droll legend This price was set by the publisher.

The ultimate winner? I’m not Steve Jobs or even John Sargent, but from where I sit, it’s you.

4/12/12: The Wall Street Journal, which has consistently beaten the Times on this story, reports an aspect of the settlement that I hadn’t previously understood. Although e-retailers are allowed to discount individual titles however they want, publishers can insist that they are not allowed to sell e-books at a loss overall over the course of a year. This means Amazon may have to pick and choose if it can only discount down to the overall break-even point (an average of 30% off under this new pricing model): some books would feature deep price cuts, others smaller cuts or none at all. If I’m reading this right, this stipulation might help others approach Amazon’s price point without falling victim to the company’s deep pockets, because the worst they could do would be to break even on e-books. Of course, Amazon still holds a huge advantage, because it can break even on all books and still record a profit on everything else it sells.

4/15/12: A typically nuanced take by the savvy and articulate David Carr.

4/18/12: And another point of view.


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