Apple, publishers accused of price-fixing ebooks

Nilay Patel breaks down the Department of Justice's price-fixing case against book publishers and Apple.

It appears that the government has quite a case, as Simon & Schuster, Hachette, and HarperCollins have all quickly settled. Apple and the others appear to be in for the long haul, so we'll see how they respond in the coming weeks.

Much has already been said; especially over whether it's in the public interest for the Apple/publisher deal to get blown up given the presumed potential for Amazon World Domination.

The New York Times' David Streitfield reports that the book world is quaking at the prospect of Amazon being able to set prices.

Traditional publishers seem set up to lose in any case, though, because they have no leverage over the distributors other than to withdraw from their marketplaces. Amazon offered them $10 ebooks. Apple offered them $13/$15 ebooks. But they're both indifferent, and will eventually find a way to leave ebook pricing to optimization by the invisible fist, whose preference for $3 impulse buys, or whatever Amanda Hocking is selling them for, is already reflected in the average price of apps.


  1. Just yesterday I paid only two(!) dollars less for an ebook than what they would have charged me to ship a hefty tree-killing manufactured hard cover edition of same. Insanity.

    1. Really not insane at all.  The majority of the work and cost is not in the printing/manufacture of hard cover, but in the crafting, editing and marketing of the book.

      1.  I’m not arguing for $2 ebooks. Really. I just think that electronic bits sent to my device in 10 seconds should cost LESS than the shipped hardcover edition. More than $2 less. I’d certainly own more ebooks if that were so.

        1. The problem with that line of thought is the assumption that subtracting the printing costs and shipping costs should automatically equal a lower price.  But it’s not a straight subtraction, it’s a subtraction, followed by an addition.  Subtract the dead tree costs, but add the electronic costs.   Plus the fact that publishers are now having to carry both the costs of dead tree distribution as well as the costs a new distribution model.  This is where a new company can come in and grab marketshare because they aren’t tied to old ways of doing business, but for the larger publishers, it’s hard to be nimble without first destroying what they’ve spent decades building.

          Personally I’d like to see the cost of digital books drop.  But the possibility of Amazon becoming the 10k lb gorilla could destroy publishing as we know it.  This is neither good nor bad (good for some, bad for others).  But there would be (will be) a period of adjustment where neither the physical book lovers and the e-book lovers are satisfied. 

          1. I don’t doubt your numbers, but I think that the lessened risk to the publisher is being undervalued. With ebooks there is no predicting the print run, keeping stock, returns, logistics, etc. etc. Those things all have inherent costs as well, and I bet they are more than $2.

        2. Then you’re asking for a lesser product. The cost of books is not in the packaging but in the labor that goes into creating the content. If you want to pay less, fine – but if this trend continues, just know that it’s going to be harder and harder to publish quality books. As it is, most books sell at a loss, so you’re asking that publishers take an even bigger hit. Amazon is fully aware that its eBook pricing model is not sustainable, but since they’re breeding buyer habits, they can go back and push Publishers into charging less for their product. (See how they handled the whole IPG thing a few months ago.)

          1. I agree! Maybe my issue lies in the deep discounting of the hardcover edition. I just think that ebooks should cost less than paperbacks, and that paperbacks should cost less than hardcover editions. All too often I’m only seeing a buck or two price difference between physical books shipped across the physical country and what is essentially the emailing of a zipped file. A file that I probably can not re-sell or loan to a friend. This is madness.

      2. Regardless of where the majority of the work is, an e-book from the major publishers arguably has much less value than a physical copy.  You’re often tied to a single device to use it with, e-book interfaces still can’t copy a lot of the benefits of flipping through pages manually, and you usually can’t lend it to a friend or sell it off when you’re finished with it.

        The value of a product is not in the effort that goes into its creation, it’s in the value that the buyer places on it.  If you take away a lot of the ways customers can get value from something (for instance, by trying to kill the secondary market) then you can’t complain if the customers subsequently assign less value.

          1.  Where did you get anything about what I value “most” in a book from?  Those are two things that are part of the value of physical books, and which form part of the calculation of how much something is worth.  If I can’t recover the value of something at a later date, and I can’t share it with others, then it’s not worth as much as something that I *can* do those things with.

            Or, to drop to a similarly pithy reponse: If what you value most in a book is reading it in isolation without ever sharing the story with others, then we will never see eye to eye.

          2. Because the desire to lend a book to a friend means that you HATE THE CONTENT! Right?

          3.  What if I don’t like the book? I can recoup part of the cost, and probably put that money back into buying another book.

      3. Except that’s not true.  Most of the EFFORT is in writing the story, most of the cost is for the book.

        It’s the same deal as CDs/DVDs, also known as ‘plastic pushing’.

          1. Both. The paper version can be re-sold, gifted, loaned, used as a hillbilly high-chair. The digital edition is locked to your device and your account and may someday vanish from your hands if the DRM support goes away (it’s happened before).  There is much less perceived value in the ebook, particularly one with DRM.

            Remember cassette tapes costing about half of what a CD cost, despite being more costly to manufacture? The CD was more valuable to the customer.

            I think ebooks should cost more than $2 less than a hardback. I know, I read the article Preeti pointed out as well as the Jobs biography and the news and I get that it’s complicated. But they need to sort this out. DRM’d ebooks should be much cheaper than hardbacks and somewhat less expensive than paperbacks.

      4. If ebooks aren’t cheaper, then why is the industry pushing so hard to make the switch?

        1.  As someone who works in the industry…we’re not pushing for the switch. We’re trying to adapt to what the customers demand, and sometimes we’re doing that better than other times. But believe me, the executives at my company would really rather not have to change the way they’ve done business for years.

      5.  All of that is true, but does nothing to explain why e-books so often cost more than the paperback editions.

  2. There’s actually another great article over at CNet that explains WHY eBooks can’t be sold for two dollars at a sustainable rate.

    We’re heading the way of Amazon being the ONLY distributor (and soon creator?) of written content… and Bezos himself has said he doesn’t really believe in books. You really want that guy deciding what you read? Because that’s the way we’re going. Before the agency model, Amazon had a 90% hold on the e-book market, now it’s down to about 60 – 65%. Diversity is GOOD, people. Don’t forget that just so you can get a cheap eBook.

    1. Why should consumers shoulder the burden for “diversity” by paying more for ebooks? Nobody wants an Amazon (or any single entity) monopoly. Neither do they want back-room shenanigans artificially inflating the cost of ebooks in order to subsidize the status quo.

    2. Not being familiar with ALL the details, it seems to me that having books priced “the old fashioned way” is better. The publisher sets a wholesale price, and the seller decides what they want to charge for it. Didn’t the agency model have the publishers dictating the retail price? It seems to me that if Amazon sees the wholesale cost coming in too high, they simply pull a Wal-Mart on the publishers…refuse to see the ebook until the wholesale price is lower. If Amazon stops carrying a book because their cost is too high, once again the customers can complain and the publisher will have to lower the wholesale price or do without Amazon ebook sales.

      Granted, what Wal-Mart has done in pushing wholesale prices down has been bad for American manufacturing…but will such a practice be bad for writers and publishers as well?

  3. The problem is that the shipping and manufacturer costs less than $2.  I know this because there are fiction novels at the dollar store.  For $1, they can manufacture, ship, retail, and make a profit off a paperback book.   The cost of distributing an ebook is probably less, but the cost of distributing a paper book is so low as to be almost zero.   If we were going to start accusing them of price fixing, we should have done it long ago, as the price of a book has absolutely nothing to do with the production and shipping costs.  

    Also, the another likely reason is that book publishers don’t want to mess with the retail channel for selling paper books. If they made ebooks cost $5 each, because they could the retail paper book sales would really start to plummet, and the retailers would get quite annoyed with them.  They’d probably demand paper books  be sold just as cheap, because as I showed in the first paragraph, the price of a paper book is almost zero anyway. It make good financial sense for the entire book industry to keep prices high, so that more money can be made.

    1. You’re forgetting the actual labor that goes into creating the content. The writers, the editors, the publicists, the marketers, the lawyers, the proofreaders, the designers, the printers, and all the other parts that go into book making aren’t free.

      There’s also cost in coding eBooks. Because there are so many different formats, publishers have to partner with (read as “hire”) technology companies to actually create the files. It’s not like saving a .doc on your personal computer. There are entire processes for making sure that a print to digital conversi0n happens correctly – that means even more proofreaders, even more designers, pulling people who can work on ePub, Mobipocket, pdfs, etc. All of these things cost money. That means most of the books you see out in the world, don’t make back the money it cost to create them.

      The publishing industry subsists on its bestsellers. So the top 5% of books that come out, make more than what they cost. The other 95% will not make a profit.

      1.  Here’s the deal – I keep hearing people make the argument that publishers must cover the (inflated) costs of marketing, coding, editing, etc..

        First, lil’ ol’ me can generate copy readable on several different devices in the space of an hour or less. Guess what? You don’t need to pay me $60 an hour to do that. Instead of sourcing what is essentially menial digital labor out to an in-house department with all of that overhead and waste, pay some smart folks $15 an hour to do this from a remote office. Sheesh. Spending too much to make “enough” profit? CUT COSTS.

        And think about the way that marketing is done – almost the entire marketing budget of any publisher goes to promote a small subset of (mostly terrible) authors. Those same authors sell most of the books. Perhaps because millions of dollars have been spent marketing them? I don’t care to subsidize the massive amount of pure garbage that litters the bestseller lists by paying more for the gems – which most likely DIDN’T get massive amounts of marketing dollars spent.

        Never have, and never will, pay more than $9.99 for an e-book. Full stop. And I buy a LOT of books, both print and e-books.

        1.  Exactly. And let’s not forget that almost every single book written today exists in an easily converted digital format from the very fist draft.

          1. And to dump more fuel on the fire:  that same argument holds true for digital music.  The bottom fell out of that market, yet magically people are still making music.

  4. the cost of printing/shipping/warehousing all of the printed books + cost of storage/physical stores/lost product/returned product

    All of the above you are telling me is only worth 2 bucks….? 

    Seriously?  I get that much of a book is in editing/layout etc.  But the physical distribution is a *real* cost which doesn’t have to be endured by an ebook.

    The advantages of keeping your product on the shelf *forever* are also there – in a retail store you fight with every other title and author for shelf space – they might keep 1 copy of an older title – ebooks are there – as many copies as need be sold – so if 10 years from now your book hits a nerve and everyone suddenly wants it – guess what?  You just sold 3+ million copies – without running out.

    And Amazon wasn’t held over the barrel because they wanted to pay less – the argument was that amazon wanted to offer discounts *taking the loss themselves*.  That’s why this is a big deal – because the same publishers that said Amazon couldn’t sell a book for less (while still paying the publisher full price mind you) sold a sweetheart deal to Apple to do that same thing.

    That’s the problem.

  5. Given how poorly most books do, I’m really not sure why authors don’t give away their first book for at least a few months.

    Hell, ebook readers really should have a ‘share this book’ button in them.

  6. I would think that the “fiction novels” at the dollar store are overstocks from the conventional production/distribution system and not items produced for sale in that class of outlet, no? Unless, of course, a new market and supply chain has opened up while I wasn’t looking. I have heard for years that the per-unit price of manufacture and shipping is a small part of the cost of getting a book to the store shelves, but I wouldn’t depend on the dollar-store (or Salvation-Army-store) price as an index to that figure.

    1. In my experience, it’s more likely that they’re public domain works produced for the $1 store market.  Tom Sawyer, The Time Machine, Sherlock Holmes, Little Women – stuff like that.  Essentially they only need to make back the bare minimum of profit to be profitable, and nobody needs to be paid to create more.

      (You also get a fine selection of trashy romance novels at those locations, and I have no idea where those come from because I’ve never thought to check.  Maybe they’re reprints from the 70s and 80s whose authors have been convinced that they don’t need to be paid more than pennies for their work?  Maybe they’re books that were originally written in some kind of “work-for-hire” fashion so the authors don’t get royalties?  However it works, I find it hard to believe that it wouldn’t be roughly the same as the public domain works – books that require no payout to an author, so the publisher can set the price as low as they can to make a minimal profit.)

  7. Creating and distributing good software also has costs associated with it, and software companies used to use the same arguments for high prices that book publishers do. Then Apple reinvented software pricing with the App Store. Creators aren’t exactly suffering as a result. Ironic that the company that created a better pricing model for software chose to maintain old, monopolistic model in book publishing.

    Everything about the digital world favors vastly expanded, inexpensive distribution. Traditional publishing evolved with limited distribution and high prices that were necessitated by an earlier technology.  Book publishers need to join the modern world. Everyone would be better off. Reasonable pricing also is the best way to solve most piracy and intellectual property issues.

    1. I totally agree with you, but I think where some of the issue comes in is what people consider a ‘reasonable price’.

      People forget that value is derived from what people are willing to pay, and that a balancing act is required to ensure maximum financial gain from the retailer along with maximum saving for the buyer.  The reality is that magic price for a book isn’t £15 – and what also needs to be remembered is that for every £15 ebook you might sell 4 £5 ebooks.  Who’s losing?

      1. what also needs to be remembered is that for every £15 ebook you might sell 4 £5 ebooks.

        Well, no.  The trouble is that the limiting factor for most readers is not money, it’s time.  So, when books go to £5, all it means is that the money coming into publishers has dropped 75% (okay 60%), the publishers go under, and we get to choose from millions of self published titles, of which thousands are worth reading.  Unfortunately, thousands among millions still means its a waste of time to pick up an unknown book and most stop trying new books.

        (Having said that, there is a temporary binge when e-readers pick up a ton of cheap books.  But once they have 100+ titles in store that they realize they are never going to read, they tend to stop buying books and spend the money saved on the next ‘Angry Birds’ app…)

  8. The key issue the publishers should be worried about is vendor lock-in, not retail pricing. If it’s true that the publishers made less with agency pricing than with wholesale pricing, then their big fear with Amazon must have been that in the long-term Amazon would lock in most of the market by subsidizing book sales, and then demand low wholesale pricing.

    Of course Amazon can only sell below wholesale because they are hoping to sell Kindles too.  If all e-readers had to use an open format this business model wouldn’t make sense.

    1.  Amen.  The real problem here is that there are exactly two bookstores at the moment:  Amazon (representing what, 99% of the ebook market) and Apple.  If there were a portable, open format, then heck, the publishers could sell directly!

  9. While I’m glad to see them go after the price fixing, which is very much illegal, I’d also like to see them go after the mandatory most-favoured nation status that all the (major) ebook retailers demand.

    If someone wants to give Amazon a better price than B&N, they should be able to do that. If B&N wants to eat that difference, it should be their prerogative, but they shouldn’t be able to force the author/publisher to accept a lesser royalty.

Comments are closed.