Settlement over e-Book Pricing to Undo Apple's Agency Model for Pricing?

[aristotle]

So who benefits from this? Amazon? Consumers? I'm not sure about that. In the short term, maybe but what about the long term?

Companies like Amazon in the online space and Wal-mart in the brick and mortar space have been squeezing out competition through predatory pricing.

This definitely does not benefit the authors or publishers who, in case you all forgot, are the source of the material. Retailers like Amazon, Wal-mart and Apple had nothing to do with the creation of those books that you enjoy.

What happens if Amazon squeezes Apple and everyone else out of the book market? They will use their monopoly to abuse the publishers with unfair wholesale prices and jack up the retail prices for consumers when they end up the only game in town.

Maybe the clauses for the same price in each store was a bad thing but the model did give the publishers the ability to adjust pricing and consumers had the ability to "vote" with their wallet by not buying the book if they thought the price was too high.

 

[IJ Reilly]

Amazon is not a monopoly. Not that it would be illegal for them to be one, but they are not. However if they used their market power (not the same thing as a monopoly) to restrain competition, then they'd be answerable to the antitrust laws.

 

[jdawgnoonan]

This is a good thing.

I can not see how this is anything but a good thing. E-Books should cost decently less than a hardback book due to the lack of paper, glue, shipping, and bricks and mortar. Look at the price of the average new e-book, they cost roughly the same amount as a hardback (and if I get the hardback at Walmart I can often get it cheaper).

E-Books are cheaper to make, distribute, and sell by a huge margin. The cost should reflect that.

----------

So who benefits from this? Amazon? Consumers? I'm not sure about that. In the short term, maybe but what about the long term?

Companies like Amazon in the online space and Wal-mart in the brick and mortar space have been squeezing out competition through predatory pricing.

This definitely does not benefit the authors or publishers who, in case you all forgot, are the source of the material. Retailers like Amazon, Wal-mart and Apple had nothing to do with the creation of those books that you enjoy.

What happens if Amazon squeezes Apple and everyone else out of the book market? They will use their monopoly to abuse the publishers with unfair wholesale prices and jack up the retail prices for consumers when they end up the only game in town.

Maybe the clauses for the same price in each store was a bad thing but the model did give the publishers the ability to adjust pricing and consumers had the ability to "vote" with their wallet by not buying the book if they thought the price was too high.

Publishers are middle men and bring almost no value at all, and e-books could make them as irrelevant as they deserve to be. Come on...they don't write books!

 

[sir1963nz]

I can not see how this is anything but a good thing. E-Books should cost decently less than a hardback book due to the lack of paper, glue, shipping, and bricks and mortar. Look at the price of the average new e-book, they cost roughly the same amount as a hardback (and if I get the hardback at Walmart I can often get it cheaper).

E-Books are cheaper to make, distribute, and sell by a huge margin. The cost should reflect that.

----------



Publishers are middle men and bring almost no value at all, and e-books could make them as irrelevant as they deserve to be. Come on...they don't write books!

So exactly what are the costs in setting up a server farm to have these books available 24/7 ?
I am sure the building costs money, I am sure the servers cost money, I am sure the network costs money, I am sure the payments system costs money, I am sure the programmers, SysOps, etc costs money, the servers need cooling too so there is MORE electricity for more money. I am willing to be the fire protection did not come for free, neither do land taxes etc. Then there is the backup of all the data, the data being available on multiple servers, hard drive replacements, of course the standby generators did not come free either, neither did the people who converted the books and then checked them for publishing errors.
Then the servers have what..2 to 3 years of life expectancy and while it is being replaced/upgraded the whole store needs to be available.

Equally the book costs the same to write, the same to research, the same to edit, the same to format being in ebook or paper.

Just because you can pirate something for what you believe is zero cost is irrelevant, because there is a cost, the computer, power, your time, the media you copy it to, backups, etc, floor space for the computer, etc these are REAL costs that businesses have to account for, you simply ignored them to get to your zero cost. I wonder how you would feel if your employer used the same logic, a person in China gets pay $30 a week so that is all YOU should be paid too, after all it seems with all the manufacturing having moved to Asia, Labour units can be copied too at a much cheaper price. If you feel you have the right to set a value on someone elses labours, be warned they will feel the same about you.

 

[mienna]

So who benefits from this? Amazon? Consumers? I'm not sure about that. In the short term, maybe but what about the long term?

Companies like Amazon in the online space and Wal-mart in the brick and mortar space have been squeezing out competition through predatory pricing.

This definitely does not benefit the authors or publishers who, in case you all forgot, are the source of the material. Retailers like Amazon, Wal-mart and Apple had nothing to do with the creation of those books that you enjoy.

What happens if Amazon squeezes Apple and everyone else out of the book market? They will use their monopoly to abuse the publishers with unfair wholesale prices and jack up the retail prices for consumers when they end up the only game in town.

Maybe the clauses for the same price in each store was a bad thing but the model did give the publishers the ability to adjust pricing and consumers had the ability to "vote" with their wallet by not buying the book if they thought the price was too high.

Simply selling a product below cost is not predatory pricing. It's only predatory pricing to drive competitors from the market and then increase prices to above market levels for a substantial period of time. Antitrust laws and the like are there to protect the consumer, not other businesses. What about the long term? You are assuming that Amazon will bide their time and then spring huge price increases on everyone.

Additionally, the flaw in your argument is twofold. If having an extremely large share of the market always led to wild price increases, then music on the iTunes store would be much more expensive. And people have choices on which to spend their entertainment dollars. If Amazon jacked up prices on ebooks to unattractive levels, people would buy the physical book, or a CD, or a video game, or go the library, or watch TV, or go see a movie, or spend time with friends and family, or go outside and enjoy the sunshine. The entertainment industry is too varied and widespread for one aspect of it to endure huge price spikes and expect to thrive.

 

[thewitt]

Apple is being investigated for illegally selling bootleg copies of Chinese Authors. 21 authors in China have filed a class action suit.

Read more here U.S. Government wants Apple to brief them on iOS app privacy

They've also been doing shady deals with Tune Corp, which is another story.

April Fools

 

[Rocketman]

The entire purpose of agency model pricing is to net the "owner" the maximal net. It is mere dealer/agent policy whether they sell at a different price than as stated (to establish the value of the product). But I wonder if Amazon sells at $0 as a loss leader and pays anything less than wholesale to the "owner". That would be wrong.

BTW Apple has the correct model. Maintaining value improves net to owner. Only incrementally fewer people buy.

Rocketman

 

[selva]

I spent a ton of money on Apple stuff but not a penny on an iBook. But the hedge funds seem to think this is going to be a huge deal for Apple by looking a the stock price action last couple of days. I guess we may have a good entry point soon for those wanting to accumulate more shares.

 

[IJ Reilly]

Simply selling a product below cost is not predatory pricing. It's only predatory pricing to drive competitors from the market and then increase prices to above market levels for a substantial period of time. Antitrust laws and the like are there to protect the consumer, not other businesses. What about the long term? You are assuming that Amazon will bide their time and then spring huge price increases on everyone.

You are correct in the first statement but not in the second. Antitrust laws were created to protect competition, that is, to prevent unfair completion from occurring. Violations are measured by the damage the violator is doing to competitors in defined markets. Consumers don't figure into this at all, except indirectly.

 

[benthewraith]

The user experience is so much better in iBooks, versus the Kindle app--books feel more like books, rather than PDFs. I just hope that the Amazon pricing doesn't reduce availability of books on iBooks. Even if they cost a little more, I'll continue to buy books via iBooks, rather than Kindle.

And I'll continue to buy books via Amazon because I can read them on my laptop. Also, a simple copy pasta puts the citation information wherever I paste it as well. In this case, functionality trumps aesthetics.

 

[ChrisA]

I'm not sure you understand 'price fixing' if you say Apple is price fixing. Explain, please.

Price Fixing is where multiple resellers agree not to discount a product.

Apple has it's own retail stores so this means one retailer, "Apple" make an agreement with other sellers (like Best Buy and Amazon) not to offer discounts.

If Apple did not have its own stores this would just be another case where a manufacturer forces resellers not to discount by saying "If you sell below this price we will cut off your supply." But Apple is a reseller so this is different.

 

[sir1963nz]

Price Fixing is where multiple resellers agree not to discount a product.

Apple has it's own retail stores so this means one retailer, "Apple" make an agreement with other sellers (like Best Buy and Amazon) not to offer discounts.

If Apple did not have its own stores this would just be another case where a manufacturer forces resellers not to discount by saying "If you sell below this price we will cut off your supply." But Apple is a reseller so this is different.

Um, where has Apple gone into an agreement with Best Buy ?
Apples agreement says that if you are going to sell the item for LESS money, then Apple gets to sell it at that price too. There is NOTHING to stop the person from selling their book for MORE with any other retailer.

 

[sir1963nz]

eBooks are priced way too high. How could Apple get pricing so right when it comes to music and so wrong when it comes to eBooks? If I'm going to shell out almost as much for an eBook as the actual book, I'd rather just buy the actual book.

HUH ?
I often buy CDs/DVDs CHEAPER from stores than I do from iTunes.

with eBooks, Apple is NOT setting the price, that is done by the publisher, Apple simply takes 30% for making it available, handling the payments, etc.

 

[bsolar]

BTW Apple has the correct model. Maintaining value improves net to owner. Only incrementally fewer people buy.

If you need to fix the price to "maintain value" it means the value is not as high as you think, otherwise people would buy at the higher price.

About ebooks pricing, it was calculated some time ago that 2.99-3.99 is the optimum price to maximise total revenue: http://www.evilgeniuschronicles.org/wordpress/2011/01/12/ebook-pricing-vs-revenue/

Another interesting read is http://jakonrath.blogspot.com/2011/03/ebooks-and-self-publishing-dialog.html where a self-publishing author which refused a $500k deal to keep self-publishing expresses his opinion about pricing and why publishers are doing it wrong:

Joe: We can make 70% by self-publishing. And we can set our own price. I have reams of data that show how ebooks under $5 vastly outsell those priced higher.
Barry: This is a critical point. There’s a huge data set proving that digital books are a price-sensitive market, and that maximum revenues are achieved at a price point between $.99 and $4.99. So the question is: why aren’t publishers pricing digital books to maximize digital profits?
Joe: Because they're protecting their paper sales.

 

[Oletros]

Um, where has Apple gone into an agreement with Best Buy ?
Apples agreement says that if you are going to sell the item for LESS money, then Apple gets to sell it at that price too.

The OP is talking about Apple not allowing other resellers to discount Apple's products.

There is NOTHING to stop the person from selling their book for MORE with any other retailer.

 

[scott112233]

so why isn't 'most favored nation' status allowed?

as I recall it is part of all government contracts...

 

[bsolar]

so why isn't 'most favored nation' status allowed?

as I recall it is part of all government contracts...

"Most favoured nation" is not illegal per se. Apple & publishers are under fire from the antitrust because there is the suspect that this clause was (ab)used to facilitate collusion and price-fixing, with the result of harming the ebooks economy.

Given that a settlement seems underway in my opinion this suspect must be pretty well backed up with evidence, otherwise I doubt Apple & publishers would not litigate the issue.

 

[darbus69]

Wirelessly posted

I am already purchasing more of my books and music from Amazon. Cheaper in many cases, and at least with music a better selection of the hard to get recordings I am interested in. These purchases are indexed right into iTunes, Amazon has cloud storage, not as expansive as iTunes but it's there. I figure I can have my cake and eat it too.

Read this article from Mother Jones (this link is to the mobile site) about employment practices in Amazon type Distribution Centers and then let everyone know how proud you are to support Amazon-Like Walmart, I avoid buying from Amazon-besides Bezos takes his (your) billions and goes searching the oceans for space junk... http://m.motherjones.com/politics/2012/02/mac-mcclelland-free-online-shipping-warehouses-labor

 

[Judas1]

I wonder if publishers charge authors the same amount for ebooks. After all, they don't handle distribution like with paper books. If publishers want to survive for long, they shouldn't expect to get the same amount.

 

[The Man]

Here in the Netherlands we have laws that guarantees the price (lowest and highest) of a book in Dutch and Frisian language as set by the publisher. And sellers have to sell at that price. There are many exceptions, all described in the law, such as when discounts are allowed. This is to protect sellers (from having to compete). It is to protect the publishers. And it is to protect literature as a whole. Bestsellers (with high margins) will pay for the books that sell less. Bookstores may carry a larger selections of books without having to compete with supermarkets with bottom prices. But the same law also causes publishers to go for bestsellers and carry less authors. There are pros and many cons. The point is to show that not everywhere in the West do we have a free (book) market. And it also shows that in some countries, it is the publisher's right to set the prices.

Although there is no law for eBooks, go figure.

 

[AppleHater]

So exactly what are the costs in setting up a server farm to have these books available 24/7 ?
I am sure the building costs money, I am sure the servers cost money, I am sure the network costs money, I am sure the payments system costs money, I am sure the programmers, SysOps, etc costs money, the servers need cooling too so there is MORE electricity for more money. I am willing to be the fire protection did not come for free, neither do land taxes etc. Then there is the backup of all the data, the data being available on multiple servers, hard drive replacements, of course the standby generators did not come free either, neither did the people who converted the books and then checked them for publishing errors.
Then the servers have what..2 to 3 years of life expectancy and while it is being replaced/upgraded the whole store needs to be available.

Equally the book costs the same to write, the same to research, the same to edit, the same to format being in ebook or paper.

Just because you can pirate something for what you believe is zero cost is irrelevant, because there is a cost, the computer, power, your time, the media you copy it to, backups, etc, floor space for the computer, etc these are REAL costs that businesses have to account for, you simply ignored them to get to your zero cost. I wonder how you would feel if your employer used the same logic, a person in China gets pay $30 a week so that is all YOU should be paid too, after all it seems with all the manufacturing having moved to Asia, Labour units can be copied too at a much cheaper price. If you feel you have the right to set a value on someone elses labours, be warned they will feel the same about you.

It's a common knowledge that skipping a layer (retailer) is a big cost reduction in any industry. Unless you can come up with some numbers to back up your claim of running servers being as costly as retail model, it doesn't make sense to me. Think about it where Apple is giving away 5GB storage for free and how much will it cost them.

BTW accusing others who ask lower ebook price of being pirates is quite a jump in logic.

 

[Rocketman]

If you need to fix the price to "maintain value" it means the value is not as high as you think, otherwise people would buy at the higher price.

About ebooks pricing, it was calculated some time ago that 2.99-3.99 is the optimum price to maximize total revenue:

You are disregarding the central tennet. An author or publisher has a PROPERTY RIGHT of the work and the particular expressions of that work, such as a hardback book, a DVD, a video file or a book file. The Content owner alone has the right to set price. If there is a network such as Apple, Amazon, Kindle or others that have a "systems approach" to selling one is free to plug into that system or not. One is free to unplug from alll and sell through traditional physical networks or even your own private virtual network.

The incentives for joining networks are access to the "network effect". They seem to have differing distribution models, pricing schemes and even file formats to make it "sticky" to have a member largely stay attached to their network.

In fact I believe some networks attach copyrighted DRM schemes on top of the original owned content to enforce the provision of only viewing a particular sourced file on a particular network, however a content owner is free to reformat files for any or every such network.

These are privately owned content, on privately owned networks, operated under commercial contracts that govern the access, use and terms.

But ultimately I as an author can state I have a suggested retail price for my engineering book of $295.95 per copy where perhaps the latest episode of a novel might happen to be $9.95, and have a far wider audience.

I am further free to authorize Apple to take a 30% fee for the combination of the access to their user base, the network effect, the marketing benefits of their software such as Genius, Top 100, categorization, search and other promotional benefits apart from the network effect or the frictionless distribution and payment benefits.

I am also free to sell the same product in different formats on Amazon including a distinctly different computer file, a physical book, or even a paperback book, if I choose. I am free to price them differently according to MY standards, not someone else's. It is my property right. Period.

I would object to a dealer selling my product under terms that in any way reduce the net wholesale price I get after all contracted commissions, markups or fees. So if I never sell my book to anybody no matter how many they buy at under $125.00 I can withdraw my product from their network if they opt to sell the book for under $125.00, whether or not they are honoring their contract with me to pay a net amount for each book delivered, even if the customer pays zero due to marketing schemes, or credit failure.

I am also free to be happy they are using my product as a marketing perk, effectively giving it away free with an order or some other scheme, so long as what they pay is exactly what I would have gotten if they had sold the book to the end user at $295.95, the full price.

I have discomfort but no legal objection with them selling my book at 20% off as a trick to get someone to buy from them rather than another dealer who sells at full price to support a physical and local presence to make product discovery practical via a method outside of that or any electronic network.

Rocketman

 

[bsolar]

Read this article from Mother Jones (this link is to the mobile site) about employment practices in Amazon type Distribution Centers and then let everyone know how proud you are to support Amazon-Like Walmart, I avoid buying from Amazon-besides Bezos takes his (your) billions and goes searching the oceans for space junk... http://m.motherjones.com/politics/2012/02/mac-mcclelland-free-online-shipping-warehouses-labor

By this logic you should also avoid buying Apple's devices (among others) until Foxconn's working conditions get improved to an acceptable level.

 

[benthewraith]

You are disregarding the central tennet. An author or publisher has a PROPERTY RIGHT of the work and the particular expressions of that work, such as a hardback book, a DVD, a video file or a book file. The Content owner alone has the right to set price. If there is a network such as Apple, Amazon, Kindle or others that have a "systems approach" to selling one is free to plug into that system or not. One is free to unplug from alll and sell through traditional physical networks or even your own private virtual network.

The incentives for joining networks are access to the "network effect". They seem to have differing distribution models, pricing schemes and even file formats to make it "sticky" to have a member largely stay attached to their network.

In fact I believe some networks attach copyrighted DRM schemes on top of the original owned content to enforce the provision of only viewing a particular sourced file on a particular network, however a content owner is free to reformat files for any or every such network.

These are privately owned content, on privately owned networks, operated under commercial contracts that govern the access, use and terms.

But ultimately I as an author can state I have a suggested retail price for my engineering book of $295.95 per copy where perhaps the latest episode of a novel might happen to be $9.95, and have a far wider audience.

I am further free to authorize Apple to take a 30% fee for the combination of the access to their user base, the network effect, the marketing benefits of their software such as Genius, Top 100, categorization, search and other promotional benefits apart from the network effect or the frictionless distribution and payment benefits.

I am also free to sell the same product in different formats on Amazon including a distinctly different computer file, a physical book, or even a paperback book, if I choose. I am free to price them differently according to MY standards, not someone else's. It is my property right. Period.

I would object to a dealer selling my product under terms that in any way reduce the net wholesale price I get after all contracted commissions, markups or fees. So if I never sell my book to anybody no matter how many they buy at under $125.00 I can withdraw my product from their network if they opt to sell the book for under $125.00, whether or not they are honoring their contract with me to pay a net amount for each book delivered, even if the customer pays zero due to marketing schemes, or credit failure.

I am also free to be happy they are using my product as a marketing perk, effectively giving it away free with an order or some other scheme, so long as what they pay is exactly what I would have gotten if they had sold the book to the end user at $295.95, the full price.

I have discomfort but no legal objection with them selling my book at 20% off as a trick to get someone to buy from them rather than another dealer who sells at full price to support a physical and local presence to make product discovery practical via a method outside of that or any electronic network.

Rocketman

I'm curious about these "networks" you talk about? Can you do more to explain them to us?

As a college student I'm already cringing at books being sold for $295.95. Simply because, they aren't worth that and there are thousands of other ways to get the information I as a student would need.

 

[bsolar]

You are disregarding the central tennet. An author or publisher has a PROPERTY RIGHT of the work and the particular expressions of that work, such as a hardback book, a DVD, a video file or a book file. The Content owner alone has the right to set price. If there is a network such as Apple, Amazon, Kindle or others that have a "systems approach" to selling one is free to plug into that system or not. One is free to unplug from alll and sell through traditional physical networks or even your own private virtual network.

You're right that the author/publisher has the right to set the price, but only on the sales he does directly.

With the Agency model basically the publisher is selling directly to the end consumer and Apple (or whoever is acting as Agency) gets a commission. By selling directly you retain full control on the price for the end consumer, obviously.

With the Wholesale model you sell to the retailer, and the retailer sells to the end consumer. You sell directly to the retailer and have control only on the price the retailer pays to you for this direct sale. Then the retailer re-sells to the end consumer at whatever price he sees fit (unless there are other clauses, which might be the case).

Both models are fine, it's not like the Agency model is wrong per se. The issue is that the antitrust believes the Agency model was abused to facilitate price fixing and anticompetitive behaviours which harmed the ebook economy.

In any case no matter the model, as the links I posted previously explain, maintaining a high price on ebooks is reducing income, which is maximized roughly under the 4$ price point. There is no reason to keep the price high hurting digital sales unless you want to protect your dead-tree sales, which is most likely the reason publishers insist on unreasonably high prices.