Archive for March 9th, 2012

Get the Popcorn Ready

It’s time to watch the battle lines form and opposing sides to form.  The DOJ is threatening action against Apple and five of the six big publishers, suggesting collusion in the pricing of eBooks.  Even though the issue is complicated and the sides are the DOJ vs Apple and the publishers, I suspect within a few days the narrative will be presented as Amazon vs iBooks, as this looks to be a battle between the Wholesale and Agency pricing methods.  However, I’m sure it’s also going to morph into questions of why eBooks are “so expensive” and play into the standard debate of whether or not traditional publishers still have a place within publishing.

The agency pricing method is a product of the last round of scraps, which saw the combined force of Apple and the publishers on one side, and legitimately Amazon on the other.  The iPad was a new piece of technology, iBooks looked to be the first Kindle competitor Amazon would take seriously, and Apple offered the publishers a more lucrative pricing arrangement whereby the publishers set prices for books and got better revenue splitting than Amazon offered at the time.  It was a move that stabilized publisher profits and writer royalties, though in doing so created a model unlike how books were distributed to brick and mortar locations.  Not that Amazon’s old Wholesale pricing method was exactly the same, either.

The crux is just how the Agency model came into place.  Apple offered it to the publishers, knowing that it would result in higher eBook prices than Amazon was offering, but also knowing that the publishers would readily agree and use it as ammunition to strong-arm Amazon into the same changes.  The publishers at the time felt that Amazon was undercutting prices on eBooks, even to the point of taking a loss on best sellers.  This created arbitrary price points that were lower than could sustain profitability, but were also training consumers that these were the prices eBooks were “supposed” to be.  To that extent there probably was some collusion that happened, these companies worked together to set a price point that they were able to enforce on Amazon through the power of their collective bargaining might.  Amazon didn’t want to lose the publishers to Apple, they folded, and today we have the Agency model ruling the day.

What specifically launched all this was a quote by Steve Jobs in his recent biography:

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.”  They went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.”

That’s pretty damning when read on its own, but it’s also the kind of bravado that Jobs was well known for in life.  On the flip side you have the CEO of Barnes & Noble allegedly testifying to the DOJ that abandonment of the agency model would likely give Amazon the power to create a monopoly.

When you boil the fight down to Apple v Amazon, it’s hard to take sides.  As a reader, I don’t want to see book prices set arbitrarily high.  As a writer, I don’t want to see them set arbitrarily low.  In the end, what I care the most about is writers getting the royalties they deserve, whether purchases come from a printed copy or from a digital edition.  Right now the Agency model protects those better than the Wholesale model did, but neither protects them as well as the model actually used in bookstores.  The model whereby an author gets the same royalty for a hardback whether bought full priced on day one of sale or for $1 on the ultra discount rack eighteen months later.

The central issue of all of this is the question: how much should an eBook cost.  And it’s a question with lots of strongly held opinions.  Amazon’s original theory was $9.99.  Apple and the publishers put into place a plan similar to the way print books are priced, with a premium for books that are in hardback, on recent releases, and from well known authors, with lower prices on older or back catalog releases.  Compounding the issue are two variables: the recent move by the self proclaimed “indy” authors to undercut novels put out by publishers by putting their novels out there for 99 cents, or even free, and lack of consumer understanding on just what portion of a book’s cost is related to the physical production.

Go into any discussion about the pricing of eBooks, and there will be a lot of them over the next few days, and you’ll inevitably see the question as to why eBooks are “so expensive.”  After all, the argument goes, the publishers are saving money on printing and distribution, so why aren’t those savings passed on to the consumer.  In large part it’s because these savings aren’t that great.  The costs of publishing a book are largely tied up in those things that don’t go away with eBooks.  Things like acquisition, editing, and advertising.  Digital distribution even has its own unique costs that offset the savings from printing and distribution.  Questions about why eBooks aren’t cheaper also don’t get into the above mentioned premium that the publishing industry has always put on new publications, especially by established authors.  A premium that has largely been understood in the past, and that exists across all media.  A new movie, a new DVD, a new game, a new CD, they’re all going to be more expensive than the movie in the second run theaters, the bargain rack DVD or CD, or the game from last year.

The Agency method also standardizes prices across formats, which is something that you don’t need to worry about with books.  If I comparison shop between Barnes, Amazon, and my local independent book seller, I may get three different prices for a book.  I can pick the cheapest one, and I can read it without any worries.  However with three major formats for eBooks, comparison shopping is limited by my ability to then read the book I picked up.  Finding a book cheaper through the Nook store isn’t going to do me a damned bit of good when I have a Kindle.  So if one company, say Amazon, consistently undercuts the other two, it’s going to push people exclusively to the Kindle.  One company can control the market by being the most able to sustain a loss.

This discussion is understandable.  And it needs to happen.  This is a new economy, and people are now paying money for things they feel less of a physical connection to.  You have a digital song, not a CD.  You have a file, not a paperback.  It’s probably fair that people pay less for these items, as they have fewer options of what to do with them.  I can’t sell back an eBook to a second hand dealer to recoup some money, for example.  It’s likely going to take a few more years for a pricing model that is fair to the electronic distributors, the publishers, and the writers to get sorted out.  This DOJ warning (and it’s good to stress it is only a warning at this stage) may end up being a very positive move towards finding something that is more evenly equitable for everyone involved in the production and distribution of intellectual digital property.  But it’s not going to be pretty along the way.

Final note, since I’m a day late on posting this due to yesterday’s technical difficulties, Apple has now responded:

But this allegation just strings together antitrust buzzwords.. Nor does this “Kindle theory” make sense on its own terms. For example, if Amazon was a “threat” that needed to be squelched by means of an illegal conspiracy, why would Apple offer Amazon’s Kindle app on the iPad? Why would Apple conclude that conspiring to force Amazon to no longer lose money on eBooks would cripple Amazon’s competitive fortunes? And why would Apple perceive the need for an illegal solution to the “Kindle threat” when it had an obvious and lawful one which it implemented – namely, introducing a multipurpose device (the iPad) whose marketing and sales success was not centered on eBook sales?

All we as readers and entry level writers can do is watch this play out.  If I had to pick a side…damn, it’s tough.  I’d stand with the Apple/Publishers side, largely because I’m concerned that this is happening so close to Amazon’s push to change revenue distribution with those publishers and distributors it believes it can push around.  That’s going to be pretty standard for me.  I’m usually going to side with content producers, because I am one, but I suspect there will be content producers on both sides of this.  As you may have figured out, this post is largely me just trying to make sense of it all myself.  Ultimately this fight will affect us all, but so many of us are going to have so little say in the resolution.

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