It’s difficult to overstate how big of a deal it is to bookselling culture that the Department of Justice is reportedly planning to sue five publishers and Apple for colluding over e-book prices*.
In order to understand why this is a big deal, here’s a brief recap of what led us here (this summary is described in greater detail in my post Why Some E-Books Cost More Than the Hardcover).
Wholesale vs. Agency
At the time Amazon kicked off the modern e-book market with the introduction of the Kindle, e-books were sold according to the traditional wholesale model. Essentially, publishers set a cover price and they got half, the bookseller got half. If a book was listed at $25, publishers got $12.50 on an e-book sale, the bookseller got $12.50.
Problem was from publishers’ perspective, Amazon was selling some e-books at $9.99 and taking a loss on those sales, all the while locking readers into their proprietary format. Not only did this devalue what consumers felt a book “should” cost, publishers were worried that competitors wouldn’t be able to enter the e-book space because they wouldn’t be able to compete with Amazon’s prices. No competitors would mean a virtual monopoly for Amazon, and publishers were presumably concerned about Amazon’s ability to then dictate terms.
Along comes Apple and the iPad. Steve Jobs talked the publishers into the agency model – publishers set their own prices and they get 70% of the proceeds.
The irony is that the agency model actually meant publishers received less money per copy sold. Napkin math for wholesale: $25 cover price, they got $12.50. Agency: Price that e-book at $14.99 and they get $10.50.
Publishers then turned around and imposed that agency deal on Amazon, which is the subject of the DOJ investigation. The end result: There really is more competition in the e-book world, but prices are higher than they likely would be if Amazon and others were able to discount as they saw fit.
Competing on Price
I don’t presume to know what the end result of the current discussions will be and it appears that there are a range of possible outcomes. But if it ends up meaning the end of the agency model this will have massive, massive repercussions across the book business.
Up until now, conscious or not, consumers have grown accustomed to the idea that e-books cost what they cost. The decision of what e-reader to buy or which app to read on has largely been driven by user experience preferences.
Do you like the feel of the nook? The ease of the Kindle app? The pretty iBooks page animation? Those are the decisions people have been basing their decisions on – the reading and buying experience.
But if the agency model is dismantled in whole or in part and Amazon and others can go back to pricing as they see fit, suddenly price is going to be at the forefront of consumer choice.
It doesn’t take a genius to see that Amazon and their deep pockets are going to have a big advantage in that environment.
The irony of returning to the wholesale model is that publishers may actually make more money per e-book copy sold even as prices go down for consumers.
This sounds like a win win for publishers, but it ignores the big losers: traditional bookstores, who will be even less able to compete with cheaper e-books. Publishers are not eager to lose those outlets and will be forced to wind down huge print operations as print continues its (inevitable in my opinion) decline. Print won’t go away entirely, but it will be a tough transition for publishers, which is why they may have tried to slow down e-books with higher prices.
This is the point that author and Authors’ Guild president Scott Turow made in a recent post:
Given the chance, any rational publisher would have leapt at Apple’s
offer and clung to it like a life raft. Amazon was using e-book
discounting to destroy bookselling, making it uneconomic for physical
bookstores to keep their doors open.
That said, it’s also worth considering author Barry Eisler’s rejoinder to Turow:
Maybe Scott would also argue that Apple is destroying computer-selling
by selling so many computers, but logically, it’s pretty hard to see how
someone could destroy bookselling by selling tons of books.
What about authors? Well, if agency goes away, in the short term they may make more per copy along with publishers since most e-book royalties are based on the publishers’ net. But in the long term they’ll also have to contend with an inevitably shrinking pie. And as Mike Shatzkin points out, self-publishers who have banked on getting attention through low prices won’t stand out as much if all prices are low.
So who wins?
In my opinion: Readers. Yes, there are dangers to publishers, which may result in collateral damage to authors. There are certainly dangers to non-deep-pocketed e-booksellers. It would be chaotic to say the least to have lots of different e-book prices and to have to contend with different formats and standards and try to decide where you’re going to buy your e-books.
But if the agency model is dismantled, e-books are getting cheaper and the book market will steadily get more efficient.
More books for less money?
As a reader: sign me up.
*Disclaimer: I am an employee of CNET, which is owned by CBS, which is the parent company of Simon & Schuster, which is one of the companies named by the DOJ. I have no direct connection to Simon & Schuster or any knowledge of its operations. The opinions expressed herein are entirely my own and do not necessarily reflect the views of CBS or anyone else for that matter.