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back to article Apple, publishers and ebook pricing – what does it all mean?

Aren’t monopoly watchdogs supposed to bust monopolies rather than create them? That question is fairly widespread today after the US Department of Justice’s intervention into the nascent ebook market. You’d need to be Solomon to regulate ebook pricing wisely at this stage in the market’s development, and it isn’t clear whether …

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Heh, that's the first time I've read an Orlowski piece that uses the phrase "business model" without proceeding to bitch about how it's a meaningless term.

As for the issue re: preventing collusion - I suspect the idea is that while a retailer may be negotiating with various suppliers at any time, they can't have one negotiation process that deals with several suppliers (nor, presumably, can they tell one supplier about the proposed offering from another supplier).

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(Written by Reg staff) Bronze badge

Oh, I'm still bitching, that's why there's scare quotes around it.

"Pricing strategy" is what people really mean. Leave the B******* M**** pseudery to consultants and academics.

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RE: the Business Model|Pricing Strategy Equivalence Hypothesis: Well, I don't agree, necessarily, that a business model *can* be reduced to a pricing strategy. (I've seen it used as a very simplified version of the idea around which a proper business plan would be designed, for example, but I realise as I type this that I may just be making your eyes roll back in your head as you start to froth at the mouth and emit a high-pitched whining sound that only dogs can hear....)

Even if it did, the English language (not to mention most other languages we've come up with, as a species) is hardly a stranger to the idea of having multiple terms or expressions for the same thing.

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Anonymous Coward

Given that Apple has more cash than Poland and in all liklihood more resources available to it than Amazon, how would moving back to the previous pricing model for e-books necessarily create a monopoly for Amazon? There is nothing to stop Apple engaging in the same sort of discounting that Amazon have been pushing. They had that option before and they have it now.

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Anonymous Coward

Antitrust goals

This whole issue is far more complex than that. Apple may be a big company in some respects, but it's a tiny player in the eBook market. Antitrust action should be designed to protect markets from destructive behaviour, particularly from companies in a monopoly position. What I can't understand is why the DoJ didn't act against *Amazon* earlier when it tried to use its early monopoly to coerce publishers into exclusive agreements that would ensure no one else could enter the eBook market? Amazon is not a publisher, and doesn't face the same challenges publishers do. Nor does Amazon rely on profits from book selling to stay afloat. But this is life-and-death stuff for publishers, and Amazon's actions were increasing doing serious harm to their business.

Conversely, Apple's business model seems to allow for the markets that develop/create stuff to make a living on its platform. The music and film industries are able to successfully make a living through iTunes, and publishers are able to make a living through iBooks. The DoJ's actions against the smallest player in the market doesn't make much sense on the face of it, but I have to assume there's some logic in it.

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Because they like their margins too much

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Bronze badge

Re: Antitrust goals

Actually Amazon is a publisher, look up 'Kindle singles' if you don't believe me.

Something, that must be giving the traditional publishers no end of nightmares.

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Anonymous Coward

Re: Antitrust goals

Apple is big in some respects? It's big in all the respects that matter.

Incidentally, are you referring to the KDP select program when you refer to Amazon's own actions? It seemed to be flawed in regards to how the money was paid out but at least it aimed to allow consumers to lend their books whilst at the same time giving some money to the authors when this happened. This was money direct to the authors. Not middlemen. I may be wrong where the current situation is concerned, but the last time I checked Apple did not allow this. How can this lack of lending be good for anybody wanting to find new authors that they might enjoy? How is this good for authors trying to attract more readers?

And it's difficult to have any sympathy for the publishing industry when they show themselves to be quite content to go after public libraries and demand that e-books only be valid for a certain time or number of lends. They complain that normal books wear out whereas e-books don't, but personally I would respond with showing them the state of some of my books after reading them only a few times. The state of the binding really was abysmal and pages often end up falling out where graphic novels in particular are concerned. They seem to be complaining about a potential drop in profits thanks to not being able to rip tax payers off by forcing unnecessary purchases of the same books. Boo-bloody-hoo.

The structure of the publishing industry itself and only be described as arcane, and I believe that this has already been commented elsewhere on this site. This added complexity that appears to serve no useful purpose can only harm the publishers. Perhaps they would be better off looking closer to home when it comes to making sure they can stay afloat rather than taking advantage of customers?

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Thumb Up

I think a good compromise was reached here. The problem never was with Apple reaching an 'agency model' deal with publishers, it was Apple and the publishers agreeing that no other e-book retailer could get e-books from the publishers at a price lower than what Apple got. If Apple want to be competitive with Amazon, they've got to be willing to reduce their 30% cut, which is frankly outrageous.

On the other hand, Amazon's pricing WAS predatory and designed to capture market share even while making a loss, so forcing Amazon (and everyone else) to limit predatory pricing is also a step in the right direction.

I think the final decision is win for the consumer while keeps a balance between Apple and Amazon so both can compete

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Anonymous Coward

Re: Antitrust goals

@AC: "Apple is big in some respects? It's big in all the respects that matter."

By what metric? I don't have exact market stats, but I believe Apple has roughly 5-10% of the desktop/laptop OS market, 15-20% of the smartphone market, and about 15-20% of the eBook market. I believe Amazon has something in the vicinity of 70-75% of the eBook market, and MS has about 85-90% of the desktop/laptop market. Care to elaborate on how Apple is the 'big' player? Or are you simply dazzled by Apple's financial performance?

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Why should it be a monopoly for Amazon?

There is nothing to stop Apple from aggressively pricing ebooks to foment iWhatever sales, as Amazon do for Kindle sales.

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Apple didn't want to build a market for Ebooks, they want what Amazon had build for Kindle sales, right now, without the work of building the market.

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Silver badge

Not a great solution

Maybe the agency model is the lesser of two evils?

Consumers potentially suffer a bit more now to prevent a far more costly suffering in a future where Amazon is the ebook equivalent of Google or Facebook. It could be argued that they are that now but whilst there are many competing stores they are the default choice but not the only choice.

Maybe we need the Agency model for the next 5 years? A digital equivalent of the Net Book agreement?

Of course I expect the fandroids to do the usual Apple = Evil thing and loose sight of the fact that Amazon is no better.

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Re: Not a great solution

Of course Apple are evil.

And, of course, Amazon are evil.

They do, however have one thing going for them that the places of evil often have - they have the population. Just as, given the way the Rules are set, Hell likely has a much higher peopulation count than Heaven (assuming either exist), Amazon is largely where the readers, the book buyers, are. So is Apple, though not as much as Amazon right now.

I think it would be fair to say that in their own perfect worlds, both suppliers would like to have all the Readers all to themselves. Both have shown their interest in walled gardens and both have shown their delight in litigation to prevent competition.

A fair market isn't high on the list of priorities of any supplier, provided they're theone able to be unfair to everyone else. It's only on the mind of the consumer - and then often takes second, third or one millionth place to habit and convenience.

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Megaphone

Re: Not a great solution

I don't care that Apple Hachette and few others signed agency model with Apple. At all. It's their business.

What I care about is clause about minimum pricing, which means that Amazon is prevented from competing on price, so if Ian M Banks novels are overpriced in Apple store, they were *guaranteed* to be also overpriced in Amazon, meaning there is no price competition going on. These are great novels, but I'd rather be able to buy them on my Kindle at the price dictated by laws of competition, not by Apple.

I don't like it at all and am happy that regulators took notice. BTW it seems to have immediately pushed down books prices on Kindle, at least for those few publishers I care about (like Hachette).

I do wonder how many Apple fans will try to convince me that the competition is a bad thing.

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Thumb Up

Re: Not a great solution

Well said that man

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Re: Not a great solution

But the price is set by the Publisher. If they don't sell books, they don't make money. It is in their interest to price their books at a reasonable price.

Amazon, on the other hand, sells abso-fscking-lutely everything under the Sun, and can afford to lower it's prices below cost (as it was doing before) to prevent competition.

-dZ.

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Silver badge

Re: Not a great solution

"But the price is set by the Publisher"

Not exactly. In this case, both the retail and wholesale prices were agreed between the publishers and Apple and forced upon all the other retailers, so bottom line Apple was controlling the price that Amazon could sell books at.

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Solution

"While Foxconn installs suicide nets for its workers, Amazon has on-site ambulances for workers who drop from heat exhaustion. Then it's heigh-ho, and back to work they go."

So don't buy their products (I don't). Is that too obvious?

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Problem

I think the problem was price fixing more than anything, Apple and the publishers put in the contract that they can't offer the e-books at a price lower than Apple are paying so there was minimal competition "I can either buy it on my Kindle which only reads e-books for £9.99 or I can buy it on my iPad which does more for £9.99... tough choice". With a change it could easily be "I can buy it on my Kindle for £4.99 or my iPad for £9.99.... tough choice!".

Reading the Reg articles, e-books are not cheaper because of this cartel, they are more expensive so your MS-DOS history doesn't really apply so hopefully we'll see cheaper books. Not that I buy e-books myself, I prefer the real thing (limited edition TP book bought for £20 and instantly the value shot up to £80!).

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Re: Problem

The prices are a bit more expensive now, when the market is still nascent. It is expected to fall as competition enters the market. This is the point.

Moreover, the prices are more expensive because before they were kept artificially lowered by Amazon. Yes, it may have been great for consumers in the short-termed, but the complaint from the publishers has always been that it was not sustainable for the industry.

-dZ.

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(Written by Reg staff) Bronze badge

Re: Re: Problem

Quite so.

Amazon can afford to destroy the publishers, after which point Amazon is the sole publishing gatekeeper and dictates the terms and prices for an entire industry.

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Silver badge

Re: Problem

The solution to Amazon's predatory pricing is for the DoJ to stop Amazon from predatory pricing. It isn't Apple colluding with the publishers to kill any sort of price-based competition and artificially prop up the margins of both Apple and the publishers.

I think the combination of breaking the agency model AND restricting Amazon's predatory pricing is a great deal for consumers (who get cheaper e-books without the market being monopolised by Amazon), and is fair for everyone else involved.

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WTF?

Re: Problem

I can see potentially how pricing and Amazon's size can be an issue for paper books.

How is it an issue for eBooks? The music industry has managed to sell through different stores despite iTunes' size and without any price fixing arrangements.

I really don't understand either the article or these comments. Fast forward this idea, and let's say the Amazon monopoly is prevented. How would competition enter, if everyone was priced the same because of this collusive dealing? Will publishers out of the goodwill just reduce prices? Why? Where is the competition?

Instead of Recommend Retail Price, this is a fancy way to ensure a Minimum Retail Price. The only thing it allows is for a hundred+ stores to offer the same price, that is neither competition nor choice. The only people who win in this arrangement are the publishers!

I would still end up buying at a big name retailer (Amazon?) just to be safe, because there would be no reason to go anywhere else. The price is the same! It's digital, exactly the same quality!

This is just scaremongering from the publishers. Even with Amazon, eBooks are not sold at a loss, as there would be no point for them to be in business. They can also easily offer ePubs cheaper than AZW which is Amazon's Achilles heel. Right now it's just words, excuses, sob stories and rising prices.

Mr Orlowski should do some more investigation and show the numbers here.

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Anonymous Coward

All costs should be borne by Apple inc.

After all, THEY fixed ebook pricing and it has taken public resources to reslove the matter!

Bill them for the time spent and fine them for being 'bent'.

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Re: All costs should be borne by Apple inc.

How nice it must be to live in such a balck and white - sorry, black and black - world.

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What kind of article is this?

The author seems entirely sympathetic to poor Apple, who apparently can't compete in an open market and should be allowed to fix high prices by collusion and force the best prices for themselves. Apple's profit margins are so freaking high on their hardware, they can afford to compete fairly, like everyone else.

To Gordon, Amazon is extremely customer focused. They don't strong arm their competitors. They offer very good prices, at the expense of high profit margins. There are lots of other options, both on the web and bricks and mortar, but Amazon is the largest web retailer because of their combination of customer service, reliability, and good prices. They were also very early in the web retail game. If they start charging rip off prices, ***people will not use them***.

They compete fairly - Apple is competing through secret deals that favor only them and damage all the competition, and of course on the hardware front, frivolous litigation.

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Re: What kind of article is this?

Actually, Amazon is doing to e-book Publishers what Wal-Mart does to their suppliers: they are a de facto monopoly in the market and get to dictate the terms to them. Amazon did not allow any publishers to raise their wholesale price, and would decide what price to set. Most of the time, the price was artificially low and at a loss, to bar entry into the market by competitors.

This prevented the publishers from being able to sell their goods to someone else, and in essence made them beholden to Amazon's whims. This was the problem. This is what the author is decrying in this article: where was the DOJ then?

-dZ.

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Silver badge

Dumping

That can be done if someone charges dumping violations (selling at a loss). If Apple/other e-tailers haven't done so, that isn't the DoJ's problem.

Or maybe most if not all books aren't being sold like that.

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Hang on, before the world of internet sales, the choice for the vast majority of people was a trip to the local book-shop, where you always paid the price on the back of the book.

Today, those local book-shops are few and far between (especially outside major metropolitan centres), but even where they do exist, they still mostly charge the price on the back of the book.

So, given that Amazon have all but killed off the compeition, why are the prices still as low as they are? Why aren't they doing the fleecing that everyone seems to expect?

No, I don't know the answer, but normally we only call out an evil corporation once it's actually doing something evil. Amazon have brought the cost of books down for most people and even provided a platform for smaller booksellers to sell out of print books (I know, i've bought a few of those) - all at lower than retail price.

Forgive me if I don't weep for those that Amazon closed down, they fleeced me for years on book pricing.

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Bronze badge

Not a terrible solution

The proposed settlement is written as if the Department of Justice has a certain amount of evidence and a reasonable belief they could win at a trial, and the fact that two publishers agreed to settle suggests that DoJ may well be correct.

The proposed order does not in any way I can see guarantee Amazon a preferred position over Apple or Barnes & Noble, or perhaps even Google. With three or four potential major competitors, a monopoly by Amazon or anyone else seems unlikely, and the retail price competition should benefit consumers. Several major sellers also will be in competition for the right to sell the eBooks and so none of them will be able to beat the publishers down to too low a price, particularly for books in great demand. The publishers, after all, have a monopoly on the production of each title in their list.

While I buy a lot of books, they are not eBooks because (in part) of doubt that I own them in the same sense that I own a paper and ink book. Perhaps in a competitive market someone would come up with a way to fix that.

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Meh

Surely the problem is the condition in the reported agency agreement than nobody can sell at a lower price than Apple, even if they're paying the publisher the same amount. So if I set up a company that can sell e-books profitably on a 15% margin I'm not allowed to compete on the basis of my greater efficiency because the price has been set to accommodate Apple's 30% cut.

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That's part of the problem. The other part is that Apple and the publishers colluded to force an agent pricing model on all major e-book retailers, esp Amazon. This type of collusion, including the 'most favored nation' clause you mention, is completely illegal.

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Devil

Digital Research

If I recall correctly, the nub of the MSDOS v DRDOS case was that MS i. promised to undercut whatever DRDOS quoted and ii. would charge even less if the OEM didn't offer DRDOS at all. Unsurprising that Digital Research lost and that prices then rose.

As ebooks go, Apple can still compete if Amazon price aggressively; what they cannot do is cream their normal 30% off the top.

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How can you compare this to Microsoft!!! It makes no sense -- none -- whatsoever.

Microsoft owns the copyrights to Windows and the related interconnected software stack to which there is no interoperable substitute software due to trade secrets, on the spot updates, and copyright restrictions on reverse engineering and on selling and distribution. And all nonMS PC apps require a functional Windows underneath. Where a pseudo competitor can arise (despite Windows today being much more extensive than DOS ever was), the hopefully small but many differences give network effect advantage to the incumbent. In brief, it is very difficult to create a PC platform that goes around Microsoft or create an app that sells widely that doesn't defer to Microsoft in various ways. In fact, without the Microsoft antitrust, it's almost certain software today would be very different. Microsoft would own most of it, and they would have broken the web (embraced, extended, extinguished).

Amazon, in very sharp contrast, most certainly does not own books and reading material. Exception exhibit number one, the Register. In fact, Amazon hardly owns copyright as a fraction of the total "consumed" by consumers and in any case would have to buy such rights at huge expense (and will never own near all of it). Additionally, Amazon does not come close to owning the distribution channel. Exhibit number one, that the Register didn't have to pay a dime or require any permission for their work to reach me. It's easy to sell off a website. And last I checked, stories didn't require compatibility with Amazon's framework [Note the contrast to software where it is easy to sell off any website, but the product must still play by Windows rules and compete against Microsoft competition.]

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Good for them

Maybe it's just my bias against Apple, but I think that from a consumers perspective this good, since it should mean lower prices for us. Well done.

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Are you trying to say that apple does not have the financial clout to take on Amazon's aggressive pricing?

I didn't realise Apples products were doing so badly

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Facepalm

Silly article

Prices rose. For ebooks. Above cost. Margins simply must be higher for ebooks.

While stopping Amazon from potentially becoming a monopoly is great, any means to do so should not be employed.

Price fixing is most certainly not a way. Free markets must reign. Until the monopoly position is abused.

Remember that a monopoly is not illegal per se, abuse of that position is. Apple today has a tablet monopoly. This is not illegal. Telling anyone selling any other tablet to match iPad pricing would be.

Innocent until proven guilty I'm afraid. For Amazon too, even if you don't like it.

If the publishers are really in that much trouble, they can get together and make their own store front, and sell things cheap and get all the margin.

Undercut Amazon. Legally.

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Amusing article Andrew

The enemy of my enemy is my friend seems to be the tl;dr

What people tend to forget is that prior to Amazon entering the market books cost a LOT more, at least here in the UK. Waterstones, Dillons and WH Smith was it for most towns - if you were lucky. Attempts to order books were treated as if you were some sort of nutter.

Amazon made significant investment in the physical book market. I bet a load of authors nearly fell off their perch when their ancient (to publishers) books started selling again.

Apple has done sweet fuck all for the book market other than push prices up and take their (very large) cut of the retail price.

Amazon pushed prices down for us plebs, Apple pushed them up.

Strangely I fail to see the monopoly pricing you predict in the UK - Amazon have been the major player for long enough now mmmm?

You sound just like the chairman of Waterstones bewailing why the status quo doesn't work any more (I'm sure you can find his wailing in Guardianista land).

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Re: Amusing article Andrew

"What people tend to forget is that prior to Amazon entering the market books cost a LOT more, at least here in the UK. Waterstones, Dillons and WH Smith was it for most towns - if you were lucky. Attempts to order books were treated as if you were some sort of nutter."

And why did that happen? The Net Book Agreement was scrapped. One result was that it mortally wounded the independent sellers and strengthened the big chains you mention - not to mention allowing supermarkets taking a big slice of the action.

Out of this, some prices did come down – namely, the big sellers... with less choice in what we can buy from bricks and mortar stores, and the range of those stores.

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And the authors who produce the goods, where are they in all this??

The real losers in all of this are the actual authors who will lose even more through discounting.

Publishers have a monopoly that limits authors' royalties, because authors themselves have no distribution channels and publishers have that monopoly . Why is nobody trying to break that???

Apple has attempted to offer an outlet, like other print-on-demand and self-publishing companies, so I would at least put Apple in the Barnes & Noble league of offering authors a fair percentage for their product (e-books cost peanuts to produce, so publishers are raking it in).

Time to get priorities and perspectives in order I think!

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Silver badge

Re: And the authors who produce the goods, where are they in all this??

" ... authors themselves have no distribution channels and publishers have that monopoly."

Not true. For ebooks, places like Baen Ebooks (www.baenebooks.com) and others have channels where authors can sell their books. There are also ebook publishing houses (on the internet of course) who will package your manuscript into an e-book (as a paid service) and have various charges depending on the publishing and sales model an author wants.

However, hardly anybody (in the grand scale of global numbers) knows about these outlets, which is no good for blockbuster bestselling authors (think J.K. Rowling, Dan Brown, etc). Even for middling authors, unless their ebook has DRM, then a popular book will find its way onto the torrents in a very short time. People who are capable of looking into internet niches for ebooks can easily find the popular ones for free on the torrents; I know I did :)

For paper books, an author can go the 'roll your own route' via the so-called vanity publishers but the question has to be asked - why didn't J.K. Rowling and Dan Brown (etc) do this? Probably because it's too much hassle and they are happy with the deal the existing publishers gave them.

If authors who want more money want a better deal, they will have to spend lots of time not writing books, but chasing publishing and distribution opportunities. It seems they've decided not to bother.

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Re: And the authors who produce the goods, where are they in all this??

“However, hardly anybody (in the grand scale of global numbers) knows about these outlets, which is no good for blockbuster bestselling authors (think J.K. Rowling, Dan Brown, etc). Even for middling authors, unless their ebook has DRM, then a popular book will find its way onto the torrents in a very short time. People who are capable of looking into internet niches for ebooks can easily find the popular ones for free on the torrents; I know I did :)”

How about Amanda Hocking though? She’s sold 1.5 million copies through self-publishing.

Now, she was very canny about contacting book review blogs and was writing within a very popular genre (horror for young adults), but she was incredibly smart about the pricing. Hocking looked to how she and loads of others will happily spend 99 cents on an iTunes song as an impulse and charged from $0.99-$2.99 per novels.

In less than two years she made $2 million dollars. An exception to the rule perhaps, but she’s shown what can be done.

Mind you, she’s signed a big book deal now.

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@Euchrid Re: And the authors who .....

Thank you for that interesting contribution. I didn't know about Amanda Hocking and I wish her and others like her well.

My second point was confirmed when I searched the torrents for "Amanda Hocking"; her books are all over the place! (I did not download, I just had a look to assess the availability in preparation for my comment.)

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Anonymous Coward

Re: @Euchrid And the authors who .....

@Frank ly - I think you'll find that in many cases the same applies to most popular authors, regardless of what set up they've used to distribute their books or what agreement they have with the publisher. Try looking for Terry Pratchett and you'll probably find his entire collection available for download without having to pay either him or his publisher a penny. And since JK Rowling has been mentioned I would be surprised if the same did not apply to the Harry Potter series of books.

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The silence is deafening!

I don't think I read any talk about the original author of the material getting paid properly - does that plan work? Did it work before the interwebs?

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PAW
FAIL

Baloney

"Aren’t monopoly watchdogs supposed to bust monopolies"

No, they're supposed to bust abusive monopolies and those that commit anti-competitive practices in violation of anti-trust laws. In this case, that's exactly what they did.

Oh and MS DOS became cheap when MS illegally required PC OEMs to pay MS a vig for every box shipped regardless of what os was on it. It dispatched with DR DOS by throwing up phony error messages when MS Office discovered it was running. IF Amazon becomes an abusive monopoly, it too will become a DOJ target.

BTW, what's the cost of entry for a publisher to throw up their own e-book website and then cease to deal with Amazon?

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Remember

If Amazon does become a monopoly and abuses their position then the DOJ could, quite rightly, go after them in the same way.

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Unhappy

Reader hardware and ebook formats

A lot of stuff already covered above, but I think something has not been mentioned: reader hardware and incompatible ebook formats.

From what I can tell, all these guys - Apple, Amazon and Barnes & Noble (for however long) have their own hardware and lock-in on ebook formats (with DRM). With paper books, I can lend it to anybody that can read a book for crying out loud. With ebooks, I may not be able to lend it at all, and won't be able to cross hardware platforms.

It seems to me that if I buy an ebook with DRM, I am locked into that hardware platform for life - unless I want to repurchase it. So all these guys have a vested interest in getting as many folks on their hardware platform - locked in upgrades for a long time.

To me, if ebooks could be purchased from any retailer and read on any reader (with appropriate permissions etc etc) then a lot of this fuss would die out with better competition for both hardware and pricing for ebooks.

But I see that happening only through customer revolution, not through what any of these guys would do.

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bep

Re: Reader hardware and ebook formats

That's the nub of the issue for me. I don't care about Apple, Amazon or the publishers, but I do care about having books from as wide a range of sources as possible. If the format issue isn't addressed, the pricing issue is just a distraction. In Australia, retail price maintenance is illegal, so I can see why this action happened. But at the moment the competition is on price AND format, and I don't think that's ultimately good for the consumer.

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