So the DoJ fired a warning shot over the bows of book publishers, suggesting that they were colluding to fix prices for e-books. (If you didn’t, the WSJ has a clear story on the situation here. Link good for one week.) Buyers of e-books probably cheered. Why should we be paying $15 or more for a digital book?
Well, as The Guardian explained last year:
Most people instinctively feel that ebooks should be substantially cheaper than paper books, because an ebook is not physically “made”: there are no printing costs. But if, says [author Robert] Levine, the real value of a book resides in the “text itself”, then the delivery method shouldn’t much matter. The fixed costs – acquiring, editing, marketing – remain unchanged.
In truth, paper is cheap. So is printing and binding. The largest advantage to publishers about e-books is not that they don’t have to print them, but that they don’t have to store and ship them, or take them back as remainders.
So what’s this about price-fixing? It’s complicated, but the tale is essentially one of publishers squirming between two tech behemoths: Amazon and Apple. Amazon, eager to sell Kindles, would “buy” e-books from publishers, and then sell them below their wholesale price. You can see how really cheap e-books would make a voracious reader want a Kindle.
That spooked publishers, who didn’t like seeing their fresh-to-markets (essentially “hardback”) titles sold for mass-market paperback prices. But there was little they could do. If Amazon wanted to take a loss on every e-book it sold, that was their business.
Along comes Apple with its shiny new iPad. Apple offers book publishers more or less the same deal it offered music companies: we’ll sell your product and take a 30 percent cut. The difference here was the book publishers got to set their own prices. They liked that. (This is the “agency model.” Think of the reseller — Amazon, or the iBooks store — as an “agent” who gets a cut of the sale, like a real estate agent.)
The DoJ says that by imposing the agency-style payment system on other resellers (read: Amazon, but also Barnes and Noble) that they were colluding to raise prices.
I just looked at Amazon’s Kindle best-sellers. Jonathan Kellerman’s new “Victims” (Ballantine) is $14.99. William Landay’s new thriller “Defending Jacob” (Random House) is $12.99. “The Hunger Games” (Scholastic) and its sequels are selling for $5-$7. Prices drop the longer something is out… but isn’t that the same way with other media? One week a movie is $10 at the theater ($14 here in L.A.), and in a month, it’s at the $5 cinema, then a $3 DVD rental. Surely there is more price variation, especially over time, than the $.99 or $1.29 iTunes single.
I think Amazon is doing really innovative things with digital publishing, truly. But which is closer to oligopoly-style power over e-book sales — Amazon and Apple, or the five big book publishers who have to compete with dozens of smaller houses and an increasing number of self-publishing writers?
Book buyers may howl, but over the long term, an agency model actually aligns the interests of publishers and resellers—and maybe readers too. Both make the most money if they find the optimal price to move the most books.