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The DOJ Gets it Backwards in Ebook Pricing Case

Compelling testimony to DOJ from indie ebook publisher @smashwords in support of agency pricing for ebooks http://bit.ly/H3s7by

For those not in publishing, this is a hot controversy, as the DOJ has sued the "big 6" publishers for supposedly collude with each other and with Apple to adopt a model in which the publisher sets the price, rather than the retailer. This was done in response to predatory pricing by Amazon, in which they were selling books at lower than cost in order to gain market share and to build the Kindle user base.

There was no need for publishers to collude: when Apple asked for this pricing model, it made sense. But more to the point, as Mark Coker of Smashwords argues, there's plenty of competition when publishers set the price, especially for ebooks, which is an emerging field with thousands of self-publishers competing for attention, while there are only two or three major book retailers left.

It's kind of crazy how often regulators are fighting the last war. Can't they see that the concentration of power is now in the hands of retailers, especially Amazon? Letting publishers set the price is increasing competition, not decreasing it!
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44 comments
 
Publisher setting the price is exactly mode of operation in Germany. Holy grail, not to be touched.
 
Is there not a balance to be struck? Why does it have to be one or the other?

Seems to me, the maximum amount of competition comes from a market where it's neither the retailer nor the publisher but the consumer who sets the prices.

Let both publisher and retailer set the prices the way they want and let the consumer decide. May the best business model win.
 
I don't understand why this price fixing (and that is all that it is) has even been allowed to go on this long. Industry seems to always be for letting the market set the price until it doesn't benefit them then all of a sudden they change the rules. I love everything about eBooks except for the publishing industry.
 
I've very price-sensitive with respect to e-books. Feel free to try to charge me $20 for your novel in e-book format. I won't buy it. There are other, equally good novels, for less.
 
IMO it should be the author and the reader who negotiate a price between them, publishers and retailers are so last century ;)
 
Publishers are the people who convert the raw material of a book into a readable book, and the people who curate books - who create lists with a character that tells a read "well, I liked those books, maybe I'll like these books" and who vet books for quality, separating the wheat from the chaff. You think you have a problem going on an information diet now? A world without publishers is a world of millions of pages of content, but no communication. So I disagree strongly: publishers are very definitely NOT last century. (Take a look at Adrian Johns' excellent The Nature of the Book: Print and Knowledge in the Making for the necessary background to understand why publishers are still important.)
 
Agency pricing means retailers can't compete on the basis of price. How is that ever a good thing for customers? Suppliers may not like retailers pursuing cost savings, but customers do. If predatory pricing is the real concern, go directly after that. Don't use it as an excuse to eliminate competition on the retail sector.
 
well I guess DOJ looks at everything from a consumer point of view, so when publishers set the minimum retail price and do not allow retailers to sell at a discount to that, presumably consumers are not getting the discount that some retailers are willing to give. So for consumers, rates have risen.
 
The agency model means authors making a lot less money on overpriced >$10 e-books, which means more of them will go direct so they can price their e-books at the optimum level and make 10x or 100x as much profit. So I say let the publishing companies have their agency model, it'll kill them in the long run.
 
Publishers may still be important and relevan�t in some situations, and in those situations, when an author engages with the publisher, the publisher has a right to set some prices. Apple sets the price of the iPad, not the consumer and not the retailer. But more people are self publishing, and disintermediating the publisher, and they also have the right to set their pricing. Publishers are not required to publish a book in today's world, lesser known authors are often left to provide their own marketing. I think you will continue to see the roles publishers play deminish.
 
I think agency pricing is great when there are so many publishers competing to sell different materials. There is really no risk of monopoly, as there would be if there were only a few publishers.
 
Regardless of the Court's decision, it is Consumers who, ultimately, set the price. In a pinch, I will read Gutenburg project eBooks first.
 
Usually, I don't comment on many things, but the logic of the article and this blurb is just backwards. Amazon was undercutting book publishers recommended price structures because they can. That means the books were cheaper than what publishers want them to sell for/be sold for. So they adopt the agency model, INCREASING book prices. If Amazon wants to sell "The 50 New Widgets To Make Your Life Great" for $5 less than everyone else they should be able to. Is that real true capitalism? Yes. Why?Because each retailer sets their own price and and the best ebook retailer then gets to "win." Amazon has a model that is just plain better than everyone else OR they will hemorrhage cash and go bankrupt. The original system allows for Amazon to either dominate or not. It allows them to take a loss on the book sale because they make it up elsewhere. If Amazon becomes the ONLY ebook retailer (i.e. they gain a monopoly) we have a regulatory solution for that too. It's called anti-trust law. What the publishers were probably more afraid of is that if Amazon gained enough market share they would be able to dictate prices to the publishers (i.e. you'll sell us this ebook for $4 instead of $5). So instead they go ahead and create the monopoly that THEY can control. But the monopoly that has given us higher book prices is already here and not the monopoly that Amazon might have gained. I know because I have a Kindle and have watched as ebook prices climbed from the $5 range to the $10 range and every book now has a little line underneath it that says "This price has been set by the publisher." (Or something to that effect.) I'd prefer that publishers sell their books, and let the retailers duke it out to see who's best. THAT's true capitalism, not letting the publishers collude to set the book prices THEY want.
 
France has made the agency model obligatory since 1981. This has considerably harmed the emergence of new business models in the retail side of the business, and has failed to provide "better value to customers" through the choice of published books. France's e-book market is still tiny (less than 1% of the total book market according to PublishersWeekly, whilst the USA is around 7%). Title selection is worse than in the UK (1,000 new titles/year per 1 million inhabitants for France according to the SNE, whilst the UK has 2,500 new titles/year per 1 million inhabitants according to the BPA). Rather than encouraging publishers to take "bets" on otherwise unlikely authors/topics, sure in the knowledge that they could recoup their losses on "sure" books, it just encouraged publishers to increase their profitability, sure in the knowledge that they kept the market power concentrated in their hands. Small bookstores aren't very profitable, so they receive grants to stay in business (roughly 30M€/year in the name of "promoting culture"), which means big bookstores (FNAC, etc.) still only have limited negociation power with publishers.

I'm not sure that the wholesale model is better in every situation, but it has enabled a faster transition to new business models, helps more authors find an audience, and more customers find products they want.
 
The two alternatives, of determining an end price to customers and receiving a percentage from that, or of letting the retailer set the end price then receiving a percentage of that, are both broken. The correct model is for publishers to set the price they charge from their customers (i.e., the retailers), then drop out of the equation. A company wanting to control control their customers' customers (the price you pay), their customers' customers' customers (yes, there have been attempts at blocking your reselling of your used books), or even their customers' customers' customers' customers (yes again, there have been attempts at setting the minimum price used bookstores could charge for the used book you sold them), is beyond absurd.
 
What many people are failing to recognize is something Seth Godin did years ago. Amazon IS a publisher now, not just a retailer.
 
Publishers have forgotten something, their customers. While rallying against Amazon and to a lesser extent Apple and Barnes and Noble, they are ignoring us. I rarely buy a book from a "major" publisher. Most of what I buy is low priced ebooks from independent authors. A market made possible by companies like Amazon. Unless Major publishers wake up and adjust their pricing and change their business model, it won't matter as the independent authors and small publishers will put them out of business.
 
Hasn't Europe solved this one taking the consumers' side against the eBook oligopoly abuses to make capitalism work more fluidly and transparently?
 
Underneath all of this is that the government is meddling more than regulating. Commerce can take care of itself without government intervention. Adam Smith was smarter than John Maynard Keynes. People know what they want and sales volumes will be determined by reasonable pricing in the marketplace. People will only pay what they think something is worth and the government doesn't have the right to dictate what we'll pay, or interfere in the affairs of a private corporation this way. Conservatives and libertartians (politically) have always known this. Now if the liberals would wake up and realize that their freedom in the marketplace, and private lives are being interfered with and not enhanced, then the government will be our servant and not the other way around.
 
Might be worth going back reading about economics 101 and what Adam Smith thought of anti-capitalistic oligopolies and monopolies. Go capitalism! :-)
 
Smith & Keynes aside, public discussion in a moderated forum or court room benefits the common good.
 
Right on. Why would anybody insist on getting ripped off by oligopolies?
 
When there is no moderation in the courtroom, that argument fails.

I like that invisible hand. Keynes had no intent other than to force feed demand. People don't like force-feeding. I fwe allow the usurpation of our liberty, then it will be taken from us. Alexis duTocqueville warned us not to forget our identity in Democracy in America.
 
The complexity with applying "supply and demand" to books (and other creative products) is that they're not commodities, and the publisher (usually) has a monopoly on the work that they publish. So the only competition for how to buy a particular work is between retailers. This is true of music, movies, books, etc. The only competition between publishers is indirect, in that while they can't sell the same book, they can all sell similar books and compete for customers. But since books are, by definition, unique, it's not a simple competition - you might like the price, terms, etc., about publisher A, and hate publisher B, but if publisher B sells the book you want, and publisher A does not, none of that matters, because you'll buy the book you want, even if it's from the publisher that you don't like.
Ni Gang
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Should protect selt right insisting on the methods to achieve, in support of you.
 
+Deon Garrett I realize it is straying somewhat off-topic but in some ways it is related to the overall conversation to point out that there are a lot of poorly produced ebooks. I see it all the time. My problem is that for publishers ebooks are mostly free money. They are a secondary product after all, or are they?

A reasonable person might assume that they would want to be as efficient as possible with their publishing process in order to maximize profits by lowering costs. Considering they've already produced the exact same copy for the paper book, probably from the exact same digital source, all of the artwork has already been done, all of the marketing has already been done. It is nothing but another rendition of already existing content so you would expect they would not fight so hard to artificially inflate what is essentially extra (free) income.

How is this related to error-ridden ebooks? I've seen the same error in both the ebook and the print version of a book which makes me wonder if it is just a trend of quality going down overall or maybe a shift in the market that is taking place that is resulting in the ebook becoming the main product. In other words, maybe the errors from the ebook made it into the hardcopy and not the other way around.
 
This reminds me of the music record industry's fight about controlling distribution methods and pricing to the detriment of consumers. In response to the poster +Tim O'Reilly, the definition of collusion is competitors conspiring and agreeing to set the price of a product arbitrarily (at least in market terms) higher than what market forces would naturally determine. That's exactly the situation described here. I'm a conservative and usually hate government intervention, but it seems to me that this may be one of the rare instances where government is properly exercising its regulatory role. It at least should be investigated if we are to have any reasonable expectation a true free market still exists.
 
+Deon Garrett, excellent points, thanks! I guess that what I am saying is that the all of that non-curated, non-edited content on the Internet is not a replacement for edited and curated content. By publisher, I am talking about the person or organization who picks the editors and sets the tone of the imprint. There are a lot of traditional publishers whose models are going to fall, because they are not providing enough value added - but there is still, and always will be, a place for the person or organization who acquires and develops a list of books which he, she or it molds into a coherent vision, and always be a place for editors who refine the raw materials of manuscripts into the finished product of books, whatever those books happen to be.

On the specifics of this feed, well, actually, there is a publisher who recommended this feed to us - ORA. We recognized that the name Tim O'Reilly is associated with an imprint whose books are branded in a specific way (animal prints and bold colored bindings), which are styled in a particular way (there is a style manual for how code is to be represented in an ORA book, or how when a sidebar should be used for ancillary content). Those are all markers of the ORA brand, and tell us what to expect about the content of their books; and so the name Tim O'Reilly on this feed gives us some sense of what to expect from this feed. Now, that's not true of every feed we follow - and it's also true that we don't decide which books to read exclusively based upon the publisher; as we often choose a book based upon the recommendations of a friend, or the copy on the back, or by browsing through its pages, or even just because we like the cover, the same is true of feeds on Google+ or blogs or newspapers. But the existence of a publisher, of someone who we know is putting in work to curate the content, does help us to form some expectations regarding quality, style, and subject. (And those expectations are not always good - there are certain imprints I will never buy another book from, because it's clear they are not doing a good enough job at vetting books, or at helping authors develop coherent, useful content.)

I agree, too, with +Laird Popkin that publishers who think they can just scan an existing book, do a minimal amount of proofreading, and then sell the result on Amazon or iBooks or wherever aren't adding enough value to the books. And I agree that the very nature of books - the fact that the author at least, and the publisher usually, has a monopoly on a particular book, and that often books are not fungible in a way that makes competition between books possible. Obviously for certain kinds of tech books, the content is similar enough to impart some fungibility, but what about fiction? Is Twilight interchangeable with Harry Potter? This imperfect fungibility makes a purely market economy for books unattainable.
 
As +Laird Popkin points out, book titles are not commodities. They're micro-monopolies. An individual book competes in a micro-market containing itself, unauthorised copies, and non-consumption.

A more interesting question is the relative strength of brands. Authors are very narrow brands. Publishers can be strong brands in narrow domains, as in the case of +O'Reilly. Bookstores can be brands in broad domains such as leisure or travel, but also in niches.

A debate about which brand we'd like to support is I think more relevant than a debate about supply and demand pricing.
 
+Pavlos Papageorgiou I agree but only to an extent. A title doesn't exist in a vacuum where itself and permutations (such as unauthorized or pirated copies) are in competition only with a consumer's choice to not buy the title at all. It is much more complex than a simple either/or dichotomy. In theory, a consumer still has a finite amount of resources he is willing to spend on a type of commodity, a book for example, and he must choose which title(s) to buy among many choices. Titles still compete with one another and even other forms of media/literature/entertainment (not just themselves) for consumers' attention and resources, and for publishers' attention and resources to bring the title to market, so supply and demand is therefore still very much relevant.
 
The issue I have is when the ebook is 50 cents less than the paper version. Since there is no paper no printing no shipping the price should be much lower that is where we see the greed of publishers.

One of the data points in the article seems crazy to me. Of course a book published in 2010 will be cheaper 2 years later.

Publishers are not needed. People will buy a book that looks interesting. If its not written well then they will not buy another from the other. We do not need their lists either. When I buy a book from Amazon I look at peoples ratings that tells me everything I need to know. I have been buying self published books and they have been great and at a low cost. I can email or tweet the author and give them instant feed back on what I liked and what I did not like. No publisher needed.
 
Which one would be the best for consumers? One thing I never understood is why the digital version of books cost as much as the print version, or sometimes just one or two percent less. I'm still pretty much old school and still opt for the print version if it's around the same price as the digital.. If the print version also comes with the digital version as a download then that's an easy sell.

But technical manuals are different. They have a relatively short shelf life (e.g., Windows 2000 Explained! has less longevity than Moby Dick). I prefer the digital versions because there's no used book market for many technical manuals (though O'Reilly books do stay relevant a lot longer :) ). But at the same price as the print version a digital copy just doesn't seem as good a value. It's the same information to be sure, and easier to search and doesn't take up meters of shelf space, but with a print book I feel like I'm paying for something tangible.

In the past two weeks I've purchased two Android manuals and a business process management guide (print) and just yesterday "R in a Nutshell" via Google Books. Do the publishers make as much of the physical as the digital? If not, why are the digital ones such a premium and lacking "extras" Why can't I highlight a passage and share it via a social media site to help convince others that I am in fact not an unlettered ape? Why can't I print a page without copying the text to a word processor (and lose formatting in the process)?

Maybe it's the fault of the publishers or the retailers that provide the reader software. In any case, it seems that the consumers don't come out ahead.
 
+Joseph Henson in the case of leisure titles it's hard to imagine the customer thinking "I want to read a crime novel, this one's expensive, I'll buy that other one". They may think "I won't buy it it's too expensive" or "I'll buy it later in a cheaper form" or "I'll entertain myself another way".

For technical titles there is indeed a substitution choice about being informed on a specific subject. A book competes in that space with other books on the same topic, but also with other sources of information such as finding an online reference. Again the substitutability is not especially strong between book titles. It only really works between editions of the same title (short, full, digital, etc.).
 
+Andrew Yeckel I hear you for non-fungible titles. But you assume that for any particular book, there is only one price, but that's true only if it's a "must read" book. Turns out there are many alternatives for any reading choice, and the competition still exists to price books fairly relative to competing reader choices. Meanwhile, at the reader end, Amazon is using steep discounting tactics to acquire Kindle customers (even pricing books below the payment to the publisher.) Once they lock in a monopoly, do you think those prices will continue? At that point, you've got no consumer choice. While there are tradeoffs, I think you end up with more choice if Amazon doesn't own the market in a monopoly position. We know how those monopolies usually end up. They seem like a good deal on the front end....
 
+mathew murphy You make the point very clearly: there are still very strong competitive pressures on publishers. If they price too high using the agency model, it will kill them. If they don't use the agency model, Amazon will kill them. In the former scenario, they have at least of the opportunity to do the right thing for the customer (and thus their business.)

To be clear, I don't think agency is good in a world where there is a lot of retailer choice. But in a world where there is no retailer choice, you'll actually get more experimentation to find "the right price" (i.e. true market dynamics) if there are multiple parties doing price experimentation rather than just one.
 
+Pavlos Papageorgiou Again, I don't totally disagree with you, but I think you're drastically oversimplifying the situation. Even if your description of the publishing market were 100% accurate, should a free market economy allow the major publishers to collude together and with retailers to fix prices on ANY title they wish? Yeah sure, we can choose not to buy a particular title at all and hopefully eventually drive the price down, but if ALL titles' cost are artificially inflated through collusion and contract negotiation, we don't really have much of a choice, do we? We can't just choose to not buy a particular book on iTunes because it's too high and go buy it on Amazon Kindle for a more reasonable price because prices on all books have already been fixed at an artificial minimum. Again, the reality is that we're not talking about just one hypothetical title existing in a vacuum apart from all other literature. We're talking about publishers & major retailers being allowed to price fix any and all titles. Major media companies, including the "Big 6" publishers, the "Big 4" record labels, and the major Hollywood studios have been getting away with collusion and contract extortion rather than being forced to adapt to evolving markets for far too long.
 
That's an excellent, in-depth look at the agency model's affects.
 
+Tim O'Reilly If publishers don't use the agency model, Amazon will kill them? How? And why? Amazon needs books to sell. They only way Amazon doesn't lose when publishers fail is if those publishers weren't providing books customers want to buy, at a price customers are willing to pay.

Whap about Amazon raising prices if they eliminate all competition? The minute they did that, they'd have new competition. If there's money on the table, others will go after it. The only problem is if others were shut out of delivering to Kindles. Right now, they aren't (I buy from other publishers and get books sent right to my Kindle). Again, if this is the problem, deal with it specifically. Eliminating retail price competition helps only uncompetitive retailers.
 
You would think that the publisher would let the public choose a three tiered approach (costs) so the price would be within a common range and then maybe allow one set of pricing for places that offer it cheaper since they purchase more to allow access to price competition. If they would set costs at a common level (Layered) and all companies have to stick to grades of prices maybe big brother wouldn't have to step in and it would allow them to be able to monitor quickly if it isn't in keeping with agreed amount's. Unfamiliar with this subject so not too sure if this is a possibility:)
 
Amazon knew, when it designed the Kindle, that format binding it to their store/format only would kill the product like it had several other predecessors. So I can buy from Amazon, Baen, and O'Reilly and read it on the Kindle. There are Baen titles that are on both Amazon and Baen's own site. Same with O'Reilly.

The agency model would make sense for consumers if there was device to retailer lock-in. But there isn't. So it looks like greed on the part of publishers to me, which in turn discourages me from buying mainstream "big 6" works, because I'm not a fan of greedy oligopolists. I'd rather buy from a fairly compensated author or indie publisher.
 
Why again do we need the government to intervene and tell us who can set the price of something? E-books aren't something necessary for life and could really be considered luxury items perhaps.

When Simon and Schuster tried to charge almost $30 for a recent Stephen King title, I balked at it.

Sure, I wanted to read it, but when other publishers are setting the price of their e-books at $9.99 and less, I saw this as just greed.

Some publishers seem to forget that there are other alternatives to buying an ebook. This Stephen King title was available for free from my library. Sure, it is convenient, but to me there is definitely a balance between convenience and economics.

If it had been more reasonably priced I certainly would have purchased it, but instead they made absolutely nothing. I merely borrowed this book from my library and then returned it.

I also still regularly share physical copies of books with friends.

Now, I'm not just kissing up because this is an original +Tim O'Reilly post, but his company seems to have figured this out. Buying direct from them is actually on par and sometimes cheaper than going with Amazon and others. They also give you pretty much every format you can imagine. I often have a book on my ipad, kindle, and computer so that I can refer to it wherever it is most convenient. Kudos to +O'Reilly publishing for treating the consumer fairly and not like criminals.
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