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back to article Penguin chief: Apple's ebook plan 'dramatically changed' market

The CEO of publishing house Penguin has admitted that Apple's arrival in the ebook market triggered a dramatic shift in how the digital tomes were sold. David Shanks said, under questioning from the Department of Justice's lawyers in the ongoing Apple ebook price-fixing trial yesterday, that he understood all publishers signing …

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Unhappy

Reading between the lines

"Shanks said Penguin believed Amazon was holding prices at artificially low levels with its strategy, and the publisher wanted to see what price customers would actually pay for ebooks.

Lets make that a bit more believable, shall we:

"Penguin believed Amazon was holding prices at artificially low levels charging realistic ebook prices with its strategy, and the publisher wanted to see what price customers would actually pay how much they could gouge customers for ebooks.

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Re: Reading between the lines

I suspect the truth lies somewhere between the two.....

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Anonymous Coward

Re: Reading between the lines

Amazon were selling below cost. In the physical book industry, Amazon were forcing us to sell books at 10% discounted below what we could sell to Waterstones, and for ebooks, they just undersold to get a lock-in to kindles. (NB: I work for Pan Macmillan) Whether the prices set by the Agency model were too high is actually a separate discussion, and one where the lines have been blurred by politics and vocal freetards. Most cinemas, for instance use both models (Agency/non-Agency) - yet there's no holy war on whether the high price of cinema tickets / production cost of a movie is in the right balance. Yet its really the same argument (in that it doesn't have additional distribution overhead to add additional performances, you just need to cover production costs) But the window of opportunity on sales of new releases, and the expected audience size, is unchanged regardless of consumption medium.

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Re: Reading between the lines

But if Amazon was selling below cost, who was making the loss? If it was Amazon, then no issue to the distributor, or if was the publishers, then more fool them, surely?

Do cinemas have a "Most Favoured Nation" clause? As a non-lawyer, I would say that is where the real issue lies... the fact that Apple forced the price up at a competitior.

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Anonymous Coward

Re: Reading between the lines

> If it was Amazon, then no issue to the distributor

This is only true in the short term; if sales to competitor stores are falling flat due to 'higher pricing' of the same products, to the point they can no longer compete, then it slowly becomes the Amazon Monopoly. And that's what's happening right now. Amazon is coming across as a Robin Hood character in this, except its not just the wealthy nobles getting reamed, its also the market stall owners. But the peasants don't care, because, free stuff.

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Re: Reading between the lines

"Amazon is coming across as a Robin Hood character in this, except its not just the wealthy nobles getting reamed, its also the market stall owners. But the peasants don't care, because, free stuff."

Who said anything about wanting "free stuff"? I certainly didn't. eBook have less intrinsic value than paper books (can't sell them, loan them,), have lower manufacturing and distribution costs and, therefore, should be priced accordingly. I understand that the real value of a book is what is written inside it, but there is no way any eBook should be priced higher than the same title in hardback.

Personally I'd say the correct price-point is around 2/3 the paper book price, and Amazon were closer to this than the cartel publishers.

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Re: Reading between the lines

Amazon might be selling at the price you want to purchase at. They might not be selling at a price authors or distributors can survive.

In fact, I've come to fear Amazon more than Apple or Google on the publishing front. If you want a company that can enforce real monopoly pricing, it's Amazon. They've already killed Borders here in the US. I don't doubt Barnes and Nobles is next.

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Re: Reading between the lines

@Eponymous Cowherd:

<

eBook have less intrinsic value than paper books (can't sell them, loan them,)

>

Yes, I agree.

Oh - and no. I, um, don't (blush).

To clarify - it depends where you get the e-book. I could go even further and say - it depends where you _buy_ the e-book.

Even if we stick to the idea of not being (by some standards) Bad People(tm) and ripping off DRM, there are sources of legal supply that not only don't impose DRM in the first place, but don;t ask you to treat your purchase in any way differently than a purchase of a paper book. Indie publishers, larger publishers such as TOR - all they ask is that you treat it _just_like_a_paper_book - and don;t go making umpty-billion copies. While recognising they can;t actually stop you if that's what you choose to do.

So do e-books have less intrinsic value than paper books? I'll leave that to the reader - and where that reader finds their value. Heck, it might even be in the, um, story! :-)

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Re: the fact that Apple forced the price up at a competitior.

Apple did no such thing. They gave the distributors a lifeline and the distributors took it. If the other vendors really thought a lower price would sustain the distributor they could have negotiated for it. Yes, the benefits would also have gone to Apple, but they'd still have a better price point. And they'd need to compete on convenience and internal cost effectiveness.

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Re: Reading between the lines

"Amazon might be selling at the price you want to purchase at. They might not be selling at a price authors or distributors can survive."

That is the way the agency model works. Publisher forces seller to ask a fixed price, trousers most of the profit and passes a pittance on to the author.

With the wholesale model, the publisher sells in bulk to the seller at a fixed price and the seller can sell on at whatever price they like. The publisher still trousers the bulk of the profit and the author still get the same pittance.

In any case, the price I feel is reasonable for an eBook is, pretty much, in line with the opinion of most other people I have talked to on the subject. Its no good whining that the price isn't high enough if your potential customers won't pay more. If authors want more of the pie they should look for less greedy publishers or do it themselves (easy with eBooks).

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Re: Reading between the lines

@Eponymous Cowherd

<

If authors want more of the pie they should look for less greedy publishers or do it themselves (easy with eBooks)

>

Heh. I'm not sure I'd agree with the 'easy' word. Though there's a big gap between 'easy to do' and 'easy to do well' (blush).

And I'm not even talking about the joys of editing, of cover art, of marketing - even just creating effective e-book files isn't something I'd call 'easy'. But yes - it can be learned. And yes - if authors want to go that route, they're going to have to learn it.

Or, like all the other bits I said I wouldn't mention - pay for the skills of someone who already did :-). Which is why even today, working with a good Indie Publisher can save a lot of learning pain :-)).

Oh - and no. I'm not, nor am I employed by, an Indie Publisher. But I surely appreciate what the ones who publish my own work bring to the table :-))).

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Stop

Re: Reading between the lines

> But I surely appreciate what the ones who publish my own work bring to the table

The problem with publishers is that they have become the gatekeepers to the market rather than the "fulfillment" agent that they should be.

Yes, it's right that you need their skills in marketing and design so they should be selling that service to the author. What has happened is that authors are selling themselves to publishers as though the publisher is the customer. It's totally the wrong way round.

We see the "proper" model (IMO) with the likes of topatoco for the web artist. The artist is the product and they sell themselves with the assistance of a fulfillment service.

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Re: Reading between the lines

@skelband

<

Yes, it's right that you need their skills in marketing and design so they should be selling that service to the author.

>

And 'vanity presses' have always done this. And the difference between a 'vanity press' and a 'Publishing as a service' type provider can be hard to identify.

Whether gatekeepers have value depends, by and large, on the public perception of the merit and honour of the gatekeeper. You can still find articles, and still find views being expressed, that 'self publishing is just like vanity publishing'. That 'self published books are generally <insert derogatory term of choice here>'. And while that view may or may not be true of the majority of self published work, and while that view might or might not transfer to work published through 'publishing as a service' providers is down to readers. But there is also a view that readers 'value' the result of gatekeeping - that a book released through a major gatekeeper has somehow more probability (in the reader's eyes) of being worth their buying power.

It's not that the publisher is the customer. But a good one knows the market as much as providing service - and by demonstrating effective risk management shows the value of acquiring the keys to their gate to an author.

Or maybe not. After all - I'm an Idiot :-).

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Re: the fact that Apple forced the price up at a competitior.

I think you're wrong here. Apple are forcing the price upwards for customers.

No one else can sell the eBook cheaper than the Apple Store.

Apple take 30%.

So if A N Other vendor is happy to live with a 10% margin they can't drop the price.

If the author publisher needs to make $20 and the Apple markup is 30% (OK, I don't know/care whether its a 30% mark up or a 30% margin they operate on, it doesn't change the argument) then we end up with a retail price of $26.

Without the MFN clause the customer could expect the price to be $22 from A N Other, so Apple are imposing higher prices on the public.

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Re: Reading between the lines

It killed Borders everywhere, 2009 in the UK, we still have Waterstones left nationally, but they are contracting. Trouble is, it' difficult to lay all the blame at Amazon, the big market chains here as in the US sell best selling music, games and books at discount prices the specialist retailers can't truly match.

I suspect we'll reach an equilibrium with mainly small specialist chains and independents, and e-retailers.

Amazon is however no substitute for a good book shop or music store where you can actually browse far faster than on-line, admittedly you have to go there, and it does involve fresh air.

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Re: Reading between the lines

Cinemas are physical locations and they employ this to create a captive market. The ticket may be cheap, but they'll scalp you at the concession stand and bar you from bringing your own food for reasons of sanitation (about the only time you're allowed is medical necessity—diabetic food, for example).

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Anonymous Coward

Re: Reading between the lines

Any seller has the choice of selling the product ot not. Complaining about the selling price gets the supplier nowhere. The best example I can give is the question asked by a lot or purchasing managers over the past decade. "What is your China price?" If you don't meet it, you are no longer a supplier!

I spent a decade in high volume consumer sales and watched the business disappear as a result of market forces. That's the reality of a competitive market. I recall the comments of a director, "if we reduce the price by 10% how many more can we sell?" The answer at that time was about 20%. We reduced our costs, increased our efficiency and made a lot of money.

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Anonymous Coward

Apple deserves to be a prison bitch!

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I've said it before, I think when it comes to digital media the agency model is quite possibly the best approach so far as a fair deal to the publisher and the storefront. However I still wish that this agency model took the steps to deliver the ebook items at below cost, while giving the 'agency' the option to lower their cut, and pass that amount on as savings to the end user. That way although every seller might ship the book at £10, making £7 for themselves, the storefront can choose to sell it at below that value down to £7.

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Anonymous Coward

@wowfood That would be ideal, if the storefronts weren't insisting of MFN clauses stopping the sale of ebooks at lower prices on other stores. Its this, essentially, that stops the Agency 'cut' being competitive.

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Anonymous Coward

To paraphrase - won't somebody think of the authors! Didn't I read authors were getting pennies in the pound for their efforts?

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At or below cost

"Before the late Apple co-founder Steve Jobs took his multibillion-dollar biz into the ebook world, Amazon maintained its dominant position in the market by selling ebooks at low prices (frequently at or below cost) to encourage sales of Kindle ereaders. Shanks said Penguin believed Amazon was holding prices at artificially low levels with its strategy, and the publisher wanted to see what price customers would actually pay for ebooks."

Ho ho, I'd love to understand how $9.99 for a irrevocable licence to a DRM'd book is "below" cost or "artificially low".

E-books don't need to be printed in factories, or stored in warehouses, or shipped to resellers, or stored in resellers warehouses, or shipped to shops, or stacked on shelves in high street stores, or remainders returned, or shipped to customers, or remainder sales, or sending the rest off to another factory to be pulped. Nor do publishers have to worry about second hand sales, or people loaning books to other people.

And they complain the prices are too low??? E-books are an example of a product that should be significantly cheaper than the physical product and isn't. Not only for the reduced production costs, but also for the reduced rights of "owners", who own a licence to a book, not the actual book.

It's a funny world when Amazon are seen as the "good guys" in this.

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Re: At or below cost

Complete rubbish. The physical cost of a book is only about 10% of the total cost of manufacture. The vast majority is in paying editors, proof-readers, cover artists etc. who are required whether the book is dead tree or electronic.

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Re: physical cost of a book is only about 10% of the total cost of manufacture.

That depends on the type of book in question. Textbooks and other low volume books, yes. Mass market paperbacks are a whole other story.

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Re: At or below cost

"Complete rubbish."

Here is a typical break down of a book:

http://journal.bookfinder.com/2009/03/breakdown-of-book-costs.html

The printing of the book alone accounts for 10%, wholesaler another 10%, retailer 45% (of which much would pay for staff, lighting, storage, rent). It's not unreasonable to suppose that an e-book could retail for 50% of the cost of a physical book while accounting for publicity, editing, royalties and profits for the e-tailer.

And that's even without considering the diminished rights of the owner to sell, loan or just transfer their book to another device as they see fit.

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Re: At or below cost

SundogUK: "The physical cost of a book is only about 10% of the total cost of manufacture. The vast majority is in paying editors, proof-readers, cover artists etc. who are required whether the book is dead tree or electronic."

I'd submit, for your consideration, that paying a cover artist is purely a cost associated with the physical medium since ebooks don't have covers.

I know that's it's the current practice to include a picture of the physical book's cover at the start of the ebook but just force of habit on behalf of the publishers, just as it would be to put the blurb at the end of the ebook (some do that too). It's not like an interested reader will physically pick up the ebook and read the blurb to get an idea of what the book's about.

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Re: At or below cost

He didn't say $9.99 was below cost, he said the prices Amazon was charging were below cost to the publishers. Jobs offered him a chance to make a profit. More to the point, whenever you have a sales agent consistently selling product below cost, you have the classic predatory monopoly situation: an agent who is able to indefinitely undercut a market segment because the agent is using profits from elsewhere to corner the market. Again I will point out it was Amazon exhibiting that power.

Also, you need to consider that ebooks aren't simply competing with ebooks. They compete directly with physical books. Maybe in the long run ebooks win out and physical ones go away (I hope not, but recognize the real possibility that before my life ends physical books will be artifacts of a bygone era), but until then the publisher needs both streams of revenue to survive. Indeed, the stream from the physical stream is currently more important to him. It's only price fixing if he colludes with other publishers to set the prices, not if he set prices in his best interest.

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Re: At or below cost

@silent_count

<

I'd submit, for your consideration, that paying a cover artist is purely a cost associated with the physical medium since ebooks don't have covers.

>

If I may, I'll differ. Er, lots :-).

Do e-books have a physical piece of card,, or more rigid sheet, with or without an image, intended to both protect the inner pages and, potentially, attract readers? Well, no. Right up to the 'potentially attract readers' thing :-).

If electronic files can be said to have pages, then e-books have pages. And they most certainly have image pages, often posted on vendor sites to attract potential readers, that can, I would suggest, be considered 'covers'. And even if they don't, and even if the Cover Artists who do my, um, not-really-covers-because-they're-not-physical aren't really 'Cover Artists' - I'm damn sure I'd not want to be without them :-).

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Re: At or below cost

Amazon was selling at or below Amazon's cost from the publisher, (not at or below the publisher's marginal cost of supply), in order to create and extend an e-book monopoly. Each book is different, and the agency model means the publisher sells to the end user at a price the publisher determines. The reseller receives a sales commission. The agency model means resellers compete on service, not price. The publisher determines the price. Books are not fungible, so there can't really be a price cartel.

The MFN clause is vital to enable Apple (or anyone else) to know that if they invest in a business model that succeeds, the suppliers can't simply cut them off. Without the MFN clause, the iTunes store would have been shut down by the music publishers who thought the world belonged to them.

Apple's strategy definitely delivered a better customer experience (like the net book agreement), and it definitely gave the publishers pricing power. But since each book title only has one publisher, it's hard to say there was price fixing on any individual title.

What happened with the ending of the net book agreement is that many bookshops disappeared, and the reality is that books effectively became fungible as the publishers ceased to be sellers of books and actually became buyers of shop shelf space. The bookshops that remain concentrate on best sellers.

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Re: At or below cost

@Peladon.

Fair enough. I respect your view.

Personally I buy books based solely on recommendations from friends or because I'm familiar with the author so, from where I'm sitting, ebooks are a list of files sitting on my phone. I don't see the "cover" until after I've purchased the book, by which stage it's potential for attracting my purchase is moot. I must however concede that mine isn't the only reading experience out there.

Thanks for taking the time to differ. :)

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Re: At or below cost

@silent_count

And my thanks for the reply :-). And your point is, of course, not just valid but incredibly strong. Because (as all sorts of people in the Industry will tell anyone who asks :-P), 'word of mouth', recommendations from friends, and author familiarity are the strongest buy triggers there are.

But, if I may, I'll suggest even they have to start somewhere :-).

The first friend - the one who told the second friend, who told the third, who maybe told you? Why did _they_ pick up the book (heh - physically or otherwise :-) ).

The first time you read Author X? If it wasn't a recommendation - why was it? What was the trigger?

It _might_ have been the cover :-).

If I could get a hundred, a thousand people telling their friends to go read my release of, um, mumblety-mumble - I'd take it in a heart-beat :-). But if I can;t wave a magic wand and get that? If I can;t get a Tweet from Mr, Mrs or Ms Rich and Famous telling everyone to 'go buy this great book'? Well :-). I for sure won't be turning down the services of a great Cover Artist, to get a great first-impression image on Amazon.

Thoughts?

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Re: At or below cost

"The MFN clause is vital to enable Apple (or anyone else) to know that if they invest in a business model that succeeds, the suppliers can't simply cut them off. Without the MFN clause, the iTunes store would have been shut down by the music publishers who thought the world belonged to them."

That's an interesting thought, but it begs the question: do the ebook publishers need Apple and its numerous iDevice users more than Apple needs the publishers to drive incremental business? Because if it's the former, then Apple's dictating terms by introducing a barrier of entry.: raising prices always runs the risk of alienating customers and causing them to defect...unless you get them ALL on board, in which case you have a captive market and cartel behaviour. If it's the latter, then Apple would be in no position to dictate terms to the publishers; if Apple isn't that critical, they can stick with Amazon and the Kindles and so on. They get their wholesale price no matter what Amazon does afterward, unless the fear is that Amazon will pressure the publishers to lower their wholesale prices under threat of boycott?

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Re: At or below cost

I know it's probably not what you want to hear but my best advice is to give a copy each to a handful of friends and let them spread the word on your behalf. Having considered it, I suspect you're right - a engaging "cover" on amazon might get you a few sales (if you, or the publisher, are going to be paying the cover artist anyhow, it certainly wouldn't hurt to use it for the ebook as well). Suggesting your book to a relevant group on goodreads.com might help. In all honesty, I don't envy your position but if there were an easy answer, everyone would do it that way.

Hell, if you're writing fiction, hand out a few copies to people on a bus or train. As the legions of Game of Thrones fans attest, wanting to know what happens in the next episode/book will drive sales.

If it's any help, aside from friend recommendations, the first time I've picked up an author's work were from:

- fiction: wandering around the local library, or reading something else the author's written (an article or similar) and enjoying their style.

- non-fiction: seeking reference material or additional perspectives (for learning different aspects of programming) or a lay interest in the subject matter (astronomy, history, physics, neuroscience).

I'm probably a bad example to extrapolate into a general, book reading audience... but how one person goes about finding books.

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Re: At or below cost

@silent_count

And again, you're right. Because (to use my own case as an example of a possible more general pattern), I and my Publishers do pretty much all those things. And, as far as can be assessed, we get sales from all those things :-). Do I give copies away? Absolutely. Not too many - and 'too many' is as much about what the Publishers (to whom the books are, after all, under contract :-) ) think as about what I think. It's harder to hand out copies of e-books on trains and buses - but business cards with links printed on them work as well :-). And I recently was able to get agreement from both my Publishers to be able to host free, downloadable copies of my books on my own site - or rather, free almost-copies of my books. They're the real e-books, with the real covers - just only the first five or so chapters inside. And a link to where the full-fat version can be bought :-).

But the thing with a web site?

The thing with a web site, or at least one of them, i think, is that people hit a cover image first - before they get to words :-). And I know I have sales in no small degree just from those covers.

So yes - I'd say you're right. All the things you suggest can work, do work - and are used. But covers work too - so I'll still stand by my contention that the cost of a good cover isn't only relevant to paper books :-).

And, if I may, I'll continue to express my appreciation for and acceptance of your alternative view - and my thanks for it being here :-).

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Anonymous Coward

You wouldn't read about it

It's no wonder the free tards are free tarding.

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Ignoring a rise is in readership

Prices should be falling, there are more people reading books that ever due to the convenience and ease of purchase of e-books.

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Anonymous Coward

Re: Ignoring a rise is in readership

Depends on the book. There's actually LESS people reading books due to the ease-of-piracy of e-books. *in selected genres*. Especially in text books. There's only so many readers wanting a copy of The Politics of Public Sector Reform (From Thatcher to the Coalition) by Michael Burton, so do you think when the book is estimated, and the potential demographic assessed, the price point is ANYTHING to do with e-book figures? Of course not. The fact its produced as an e-book is an after-the-fact convenience for the iPad-wielding student. But for Amazon to set the price low, and therefore ensure print copies are decimated, the production costs are not recouped and it adds risk to the next text book; one which will probably have less pages, and less utility. But that's the breaks; because to the average punter the whole argument is about the latest Patrick Rothfuss.

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FAIL

Re: there are more people reading books

Perhaps you should purchase an ebook on basic economics.

More demand = rising prices not falling ones.

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Anonymous Coward

Re: there are more people reading books

Fail yourself.

More demand, with limited supply = rising price

More demand, with unrestricted supply = falling price

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Headmaster

Re: Ignoring a rise is in readership

> There's actually LESS people

There're actually FEWER people...

Sorry, couldn't resist :D

Oh and BTW Heather Reisman from Indigo reckons that they're selling more books overall both electronic and physical since the introduction of e-books. The e-book is actually stimulating people to read and they're buying physical books as a consequence.

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Gouging?

Standard operating procedure. All one needs is high demand and control of supply. It's what every company in the world is working towards.

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No pity for publishers

Publishers like music companies are seeing diminishing profits due to technological shifts. This happens with every business. Think about all those poor scribes put out of work by the printing press. Boohoo.

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