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Here we'll explore the nexus of legal rulings, Capitol Hill policy-making, technical standards development, and technological innovation that creates -- and will recreate -- the networked world as we know it. Among the topics we'll touch on: intellectual property conflicts, technical architecture and innovation, the evolution of copyright, private vs. public interests in Net policy-making, lobbying and the law, and more.

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August 12, 2011

There's a(n Ebook) War Going On

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Posted by Alan Wexelblat

Almost since the moment Amazon announced its Kindle ebook reader, a price war has been raging. It's been bloody complicated and has something to do with the limited number of book publishers, more to do with how they manage their ebook versus physical book businesses, and a lot to do with how new technologies get rolled out and what market lock-in effects mean.

The fight has largely gone on behind the scenes - the most obvious consumer-visible part of it has been the fluctuating prices for ebooks. Now it threatens to burst into full public view, with a class-action lawsuit filed in CA this week alleging that ebook publishers colluded (illegally) with Apple to fix the prices of ebooks.

The simple view of things - as presented in the suit - is that Amazon was working to force e-book prices down and the publishers decided they didn't want to play ball. In fact it's a complex situation revolving around who gets to set the prices for ebooks and whether or not a publisher will be locked in to a model or technology.

Initially, the retailer (Amazon) set the prices we would pay for ebooks as they do with physical books. Publishers charge the retailer a price but the retailer had the freedom to charge more or less than that price. In order to encourage adoption of its Kindle and to boost the nascent ebook industry, Amazon priced the ebooks low - often well below hardcover and even paperback prices. This frightened the publishers, who reasoned that Amazon would not forever take losses on ebooks; instead, they feared, once Kindle lock-in had happened, Amazon would insist on lower prices from the publishers. The publishers fought back with what is called "agency" pricing, meaning they and not the retailer would set the prices we pay. Under this model either Amazon plays ball and sells the ebooks for what the publishers want or the publishers deny Amazon access to the titles.

Although losing access to an individual title may not seem like a big deal it can be significant and relevant for adoption by customers. If customers can't find the titles they want on one ebook reader they're more likely to go with another and once you've bought your books on a particular reader you're locked in. In addition authors often have multi-book contracts with and stay with a publishing house for some years. If you want to read the latest Big Name Author book it's likely you're going to be reading something published by the same house that published her previous work. It's a complex Mexican stand-off with customers, publishers, and ebook maker/sellers all having some power to hold other parties to account.

The fight over the agency model started over a year ago with Macmillan going up against Amazon, which retaliated by discouraging people from buying new copies of Macmillan titles, and the Author's Guild and SFFWA weighing in on the publisher's side. This time it's not just one publisher, but the five big names (HarperCollins, Hachette Book Group, Macmillan, Penguin and Simon & Schuster) in publishing.

But wait, it's more complicated than that. Technically the argument isn't over the agency model itself - the model is used in lots of other places - the argument is over whether the model led to illegal collusion. The publishers are allowed to act to set prices, but they're not allowed to agree ahead of time what those prices are to be, nor to act in concert with outsiders, which is why Apple is named in the suit as well. As PaidContent.org notes, the switch by the big 5 publishers to agency models happened virtually simultaneously, happened in conjunction with the launch of the iPad, and came along with an agreement by the five to allow Apple to use the publishers' various trademarks in iPad promotion. Walks like a duck, smells like a duck...

The agency model has certainly had the effect the publisher desired - ebook retail prices have gone up some 30% in the past year. Given the introduction of new popular readers (Nook and iPad most obviously) it seems like prices ought to be going down. However, publishers do not want to be in a position where they can be dictated to, authors want more money for ebooks, and customers... well, we get the short end of the stick. Again.

Comments (8) + TrackBacks (0) | Category: Laws and Regulations


COMMENTS

1. Raven West on August 12, 2011 9:30 AM writes...

Customers may get the short end of the stick, but Authors don't even GET a stick.

My two novels; Red Wine for Breakfast and First Class Male where published in print several years ago and did quite well priced at $14.95. I published them in ebook format with Smashwords and originally priced them at what I thought was a good discount at $9.99, and several were downloaded at that price.

Then the book reader revolution exploded and authors everywhere began lowering their prices even further.

During the special Smashwords promotion in July the books were offered for FREE. I “sold a total of 565 books, the MOST ever in one month! However, once I put the price back on at .99 Aug 1, not ONE book has sold, even at LESS THAN ONE DOLLAR!

People are more than willing to shell out more than $100 for an ebook reader, but when it comes to content, they want it for FREE.

I’ve now raised the price of both books to $9.99. They probably won’t sell at that price either, but at least I’ll feel a LOT better about myself AND my books.

And yes, AUTHORS WANT MORE MONEY FOR THEIR EBOOKS... surprise, surprise!

Permalink to Comment

2. Jack W Perry on August 12, 2011 2:30 PM writes...

Agency pricing also helped B&N nook; Kobo; Sony and Google. Although Amazon Kindle could absorb losing money on each eBook sale, the others could not. The new eBook market is less than 5 years old so there will be many such developments as the industry develops.

Permalink to Comment

3. smj on August 12, 2011 3:51 PM writes...

My kindle sits on my desk and it will until the price of e-books comes way down. What is the publishing price of an e-book vs the computer written word? I'd like to know why the publishers want so much money for an e-book which must be much less expensive than a regular book.

Permalink to Comment

4. DrWex on August 12, 2011 4:42 PM writes...

@Raven: I commend to your attention Cory's talk, linked in the previous article as well as the things I've written in the past on creators making it. As for my personal philosophy you should dig around in the archives, maybe starting with this: http://copyfight.corante.com/archives/2011/01/31/artists_should_earn_money.php

That said, nobody ever guaranteed you a living or even an income from your work. Lots of people work very hard and get little or nothing for it. You may feel better putting a $10 sticker on something but if nobody buys it at $10 what's the point?

@Jack: I'm willing to believe that agency pricing helped B&N to a small share of a smaller pie. Whether it helped Nook succeed as a mass market product remains to be seen. Nook sales remain pitiful even today by comparison with Kindle and iPad.

@smj: publishers want a high price for ebooks because pricing ebooks below the cost of physical books cuts significantly into physical book sales. Having cheap ebooks didn't (yet) create new readers - it just shifted readers around. Having expensive ebooks pretty much guarantees there won't be new readers brought in this way, however.

Permalink to Comment

5. Popnowlin on August 12, 2011 9:42 PM writes...

My first kindle paid for itself in less than a year because I could by books for $9.99 instead of $15.99. Then publishers started forcing amazon to charge more for ebooks than the same title in paperback. I still read with my kindle every day, but nothing from the big publishing companies. There are lots of good ebooks on amazon for 99 cents. Sure there are some stinkers, but I have plenty to read without paying extortion to publishers who don't want to adjust to reality. Ebooks are not the future, they're now.

Permalink to Comment

6. Alan Wexelblat on August 13, 2011 6:10 AM writes...

@Popnowlin I think your response is a common one among the class of users I would call 'dedicated readers.' My guess is that you read physical books pretty regularly too (or at least did before you got the Kindle). And it reflects the tension in any new marketplace - what price point(s) will attract people like yourself who are a potentially huge marketplace. Plus there's what the British call "knock on" or "knock off" effects - the degree to which enthusiastic early buyers will act as sales/marketing people to draw in (or turn off) potential new customers.

Permalink to Comment

7. Carol on August 13, 2011 6:20 PM writes...

What are the actual costs, once a book is converted to electronic form? It must be so much less than for paper books--not only no paper, but no printing, no binding, no shipping, no retail space, no shelves, etc. Virtually no marketing costs, either. Is there any justification for selling ebooks at the same price as paper books? I love my Kindle, and bought ebooks when they cost less than paper, but since the price hikes, it's back to the library.

Permalink to Comment

8. DrWex on August 13, 2011 11:46 PM writes...

@Carol the price publishers want to charge for e-books has nothing to do with the costs of producing them. It's purely an attempt to protect their physical-book businesses, which are faced with increasing materials and labor costs. In a sense, publishers are shoveling sand against the tide.

Permalink to Comment

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