Justice Department Goes After eBook Price Fixing

The Wall Street Journal reports that the Department of Justice warned Apple and five major publishers that it plans to sue them for “allegedly colluding to raise the price of electronic books.” http://online.wsj.com/article/SB10001424052970203961204577267831767489216.html

The publishers include Simon & Schuster, Hachette Books, Penguin, Macmillan, and HarperCollins.  The suit centers on Apple’s plan to move ebook pricing from the “wholesale model” to the “agency model,” as it prepared to release the first iPad.  Biographer, Walter Isaacson, quotes Steve Jobs:

“We told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway,’”  

The publishers were then able to impose the same model across the industry, Mr. Jobs told Mr. Isaacson. “They went to Amazon and said, ‘You’re going to sign an agency contract or we’re not going to give you the books,’”

William Lynch, CEO of Barnes & Noble, testified in a deposition that abandoning the agency model would effectively transfer even more power to Amazon, since they can afford to sell ebooks below cost to build market share.

Everyone who intuitively knows that an ebook is not “worth” as much as a physical book must wonder why the two are so often priced within a dollar of each other.  If ebooks were “fairly” priced, would traditional publishers fall farther behind?  Would more brick and mortar stores disappear?

I don’t know…

But I do know that everyone who has a stake in the issue, or is just curious about the upheaval in publishing, should read this article to keep up on the latest events in the ongoing drama.

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3 Responses to Justice Department Goes After eBook Price Fixing

  1. Adam says:

    The main issue of this is what an ebook is actually worth. I can easily understand the argument of why they should be cheaper than traditional books, because they’re easier to distribute and you also don’t receive a physical copy of the book. But the question is where do you draw the line for the cost of the book?

    When a book is traditionally published, an author typically gets about 8-10% of the cost of the book (that’s for paperback, for hardcover it’s slightly higher). If you’re just judging the cost of an ebook by making sure that the author gets the same amount, then most ebooks should sell for about $2 to $3. The problem with this is that if ebooks were sold for that price, you might as well tell every physical bookstore to close their doors now because there is no way that they could compete with that kind of pricing. This would essentially create a monopoly on books because there is no way that any other company could compete with Amazon. Apple would probably be the only other company selling any books, and in large part that would be because they have a product (iPad) that can be used for a lot of other things as well as reading books.

    I really think that this discussion is one the government should stay out of. While ebook prices are probably higher than they could be, they’re not so high that people aren’t buying them. People are buying them in huge numbers (I don’t recall seeing it in the article you linked, but I’m fairly sure that the number of ebooks sold last year was far more than the number of paperback books sold last year) and the price isn’t an issue. Ebook prices are high enough to still support traditional publishing models along with supporting their distributors (Apple, Amazon, B&N, etc.) but not so high that people refuse to buy them. The prices are also low enough that people are still buying tons of books, but not so low as to where traditional physical books aren’t cost effective for publishers.

    Whether it was through collusion between companies or just the way the model worked out, we’ve reached a stable equilibrium where ebooks are available to most people for a reasonable price that still leaves physical books as a viable option for those of us who prefer to read in that fashion. So while the system in place for the pricing of ebooks as compared to physical books may not be perfect in everyone’s opinion, I don’t think it’s broken. And if it isn’t broken, don’t try to fix it.

    Like

    • You sum up the arguments and counter-arguments to agency pricing. You also sum up Mark Coker’s argument for writers to publish to Smashwords – with a 70% return on the price, a $2.99 indie book will net more for the writer than a $9.00 traditionally published title.

      Price fixing and monopolies have long been the target of government intervention, but for things of the physical world. Here in the new cyber world is a seeming contradiction. If the government ends the ebook “price fixing,” which may well make paper books a money losing venture, then they hand Amazon the monopoly status it seemingly craves – in an industry with far more impact on our lives than pork bellies and corn!

      Thanks for your comment, Adam.

      Like

  2. Rosi says:

    Fascinating stuff. Thanks for the post.

    Like

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