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Summary:

The Authors Guild weighs in on the news that the Department of Justice is investigating Apple (NSDQ: AAPL) and five of the big-six publisher…

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photo: Flickr / ButterflySha

The Authors Guild weighs in on the news that the Department of Justice is investigating Apple (NSDQ: AAPL) and five of the big-six publishers for allegedly colluding on e-book pricing: “Our government may be on the verge of killing real competition in order to save the appearance of competition,” writes Guild president Scott Turow.

In his letter to Guild members, Turow writes:

We have no way of knowing whether publishers colluded in adopting the agency model for e-book pricing. We do know that collusion wasn’t necessary: given the chance, any rational publisher would have leapt at Apple’s offer and clung to it like a life raft. Amazon (NSDQ: AMZN) was using e-book discounting to destroy bookselling, making it uneconomic for physical bookstores to keep their doors open.

Turow outlines the history of e-book prices pre-agency model, noting “By the end of 2009, Amazon held an estimated 90% of the rapidly growing e-book market. Traditional bookstores were shutting down or scaling back. Borders was on its knees. Barnes & Noble (NYSE: BKS) had gamely just begun selling its Nook, but it lacked the capital to absorb e-book losses for long. Enter Steve Jobs.”

Turow also says that the existence of bricks-and-mortar bookstores is critical for new authors, downplaying self-publishing platforms like Amazon’s KDP: “The high royalties of direct publishing, for most, are more than offset by drastically smaller markets.”

Agency pricing has caused Amazon to “[lose] its chokehold” on the industry, Turow concludes, and notes, “Direct-selling authors have also benefited, as Amazon more than doubled its royalty rates in the face of competition.” His implication: If that competition vanishes, Amazon’s high royalty rates for self-published authors may vanish as well.

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  1. I can only imagine who could possibly be funding these lawsuit efforts! Amazon? Or maybe one of their secret side subsidiaries??

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  2. “Our government may be on the verge of killing real competition in order to save the appearance of competition”. Or you could more accurately say…our government is trying to ensure there is no industry-wide collusion on pricing.

    So the industry made this move to prop up the physical book stores of the world? Did this industry not learn anything about previous efforts to keep physical media as healthy as they used to be? It can’t happen. The genie is out of the bottle. Digital distribution is substantially cheaper. And I don’t need to build a library to hold the books I purchase. And that’s a BAD thing? Look, if people WANT ebooks, they shouldn’t have to pay a “subsidy” to physical book stores to remain open.

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    1. I think you totally missed the point here. The issue is that previously Amazon was bullying everyone out of the market with their deep pockets and ebook sale at a total loss. Who knows, after everyone else has bowed out, who’s to say they wouldn’t exorbitantly raise the prices thereafter to squeeze out their profits? Not to mention it puts this trained mentality into people that devalues the actual book itself. Amazon is trying to monopoloze the market, and the market is reacting to prevent that. Conspiracy or not, Amazon should not be allowed to scalp the market the way they were.

      This has nothing to do with saving physical books. So try again.

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      1. From Steve Jobs himself.

        “Amazon screwed it up. It paid the wholesale price for some books, but
        started selling them below cost at $9.99. The publishers hated that –
        they thought it would trash their ability to sell hard-cover books at
        $28.”

        Care to restate that this had nothing to do with physical books?

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        1. Yeah, I would like to restate it.  Read this article, and you see that it says very little about physical books.  Sure, Jobs stated all kinds of stuff, but the real issue being addressed right now is Amazon’s attempted monopoly at e-book sales.  Publishers want to continue making decent profits with any format of book they put out, whether it be physical or otherwise.  If Amazon is allowed to drive prices down well below cost for both e-book and print, there will be zero competition left.  Amazon could then jack up their prices whenever they wish.  It’s an old concept, and generally frowned upon in any industry.  I can’t believe it’s been ignored for this long.

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  3. I enjoy Apple’s products and I am an avid reader.  I believe that Apple went too high for books in an e-book format. The cost to write, edit, format and market books in the ebook format is not high enough to justify the previous standard prices for new books.  Marginal costs to produce more books is also not an issue. There is no reason for copies of books published over 10 years ago to be priced as high as $10 for an ebook.  One solution would be to produce something similar to an album so I could purchase a library of books from one author or older e-books books in a bundle with newer books or something similar.  Webscriptions from Baen books was/is something along these lines

    Giving away books to those who would steal them anyway is not necessarily a bad idea.  It increases  sales from those who would like to own a book and who have sufficient resources to purchase a book.  There is an interesting argument from David Drake about what would happen if older books were given away rather than encumbered with heavy limitations from the publisher in the form of encryption.  Baen free library is proof of this concept.  Dozens of books are available for free to download and the authors and publishers are making more money because this is bringing more people to look at other books on the website (see http://www.baen.com/library/ for a listing of books available for free here).  

    Obviously, there can be no publishing industry if all books are free.  The question is whether Apple and the publisher’s efforts to find a simple compromise price for books is good enough to avoid the price fixing charges being brought against them.  I think there is no doubt that in this case it is not.  The fact that many of these books can be bought at a cheaper price on another site is clear evidence of this.  The other elephant in the room is the unfair length of copyright given to publishers and writers.  We need to end the manipulation of the original Constitutional mandate for copyrights into a demand for copyright toll after it is reasonable to do so.  20 years is more than enough time to fulfill the purpose outlined in the Constitution.  80 years after the authors death is so unfair it encourages citizens to steal rather than follow the rule of law.  Honest citizens require an honest and just marketplace and legal institutions.  If rule of law means anything it means that everyday citizens can expect fair treatment in the market place and before congress and the courts.  We currently don’t have a society where the rule of law is respected the way it was by our grandparents.  We should change this if we want to keep a strong and healthy country.

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    1.  Books sold under the agency model between two retailers cannot be differently priced. Not every publisher is on the agency model, which is why you may see variation (wholesale models allow discounting, agency does not).

      The Big 6 publishers are on the agency model. Look at their titles, and find something that is priced differently between Apple, Amazon, B&N and Sony. If you find one, the publishers would love to know.

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  4. Yes, Amazon could raise prices. Wow, when I hear this, I shake my head. The agency model DID lead to an increase in ebook prices.

    Does no one see the stupidity of this defense? I don’t like this company because it might do something bad, but I’ll defend the other companies even though THEY ARE doing what I fear the other company MIGHT do? That is some twisted logic.

    Also, Amazon achieving and sustaining a monopoly in this technology age has no basis in reality. Information has leveled the playing field. Yahoo! –> Google. Myspace –> Facebook. AOL –> Broadband providers. Microsoft –> Apple.

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    1. So when Amazon and the one other company with deep enough pockets to sell everything published at a loss, how is anyone supposed to sustain any form of competition in that arena? It’s really a simple economic concept. When sale prices get too low, competition leaves the market, since they can’t even break even. Then it’s just an inevitability that the remainjng competiton will be faced with ways to provide their shareholders more value – increasing profits. And how do they do that, when their cost models are already exhausted? *gasp* By raising prices!! It’s not a “might”, it’s a will.

      Yes, these agencies have already increased prices, but is it really that inexcusable? It’s actually giving Amazon better margins, when you really think about it… and they can still charge whatever they want for print books. So if they want to respond to this terrible conspiracy, they should just use print books to undercut the static ebook prices. Or they could just pull all agency books from their kindle library. Since they’re obviously trying to own the publishing industry anyway, it’s a natural next step for them!

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      1.  No, it’s not a *will*. Many companies have maintained this standard model. There is even an economic model name for it. The Market of Contestability. Wal-Mart has operated on this premise for 30 plus years. Amazon has built itself around this premise. Apple owns 73% of the tablet market, yet the iPads keep coming out around the same price point. Why? Because these companies must always act as if they have competitors, even when they don’t, else someone will jump in an take some of their market share.

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        1. Ah, but they don’t act as if they had competition. Otherwise they would lower prices closer to cost. No, Apple has positioned the iPad as a premium item, not a competitive item.

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  5. Did you read what you wrote? It makes zero sense.

    “Ah, but they don’t act as if they had competition.”

    So Amazon keeps its prices low just because it wants to? No reason? Jeff Bezos walks around in his bathrobe saying Amazon should lower its prices just for the heck of it?

    “Otherwise they would lower prices closer to cost.”

    Earlier you were complaining about Amazon selling things at a loss? Which is it? If you meant they should stop selling ebooks for a loss (which, by the way, is really blown out of proportion and was at any given time about 500 titles titles out of 500,000), then your previous sentence makes even less sense.

    “No, Apple has positioned the iPad as a premium item, not a competitive item.”

    No, a premium item would carry a premium price unless the item was meant to be competitive. The iPad is priced in line with other similarly spec’d tablet models. That makes it a competitive item.

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    1. Context, my friend… context.

      You began referring to Apple’s pristine business model. That was what my previous comment was directed toward. Not Amazon. A do applaud your colorful use of descriptive language, though. I’m sure we all wanted to picture that goofy eyed balding fellow in his bathrobe…

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