Today’s news brought word of a troubling development in the USA. Hagens Berman, a “consumer rights firm”, has filed a class action lawsuit against Apple and several major publishers over the “agency model” system of ebook pricing. They allege that the publishers are Apple colluded to force Amazon to sell ebooks at an unfairly high price. In particular the suit says:
While free market forces would dictate that e-books would be cheaper than their hard-copy counterparts, considering lower production and distribution costs, the complaint shows that as a result of the agency model and alleged collusion, many e-books are more expensive than their hard-copy counterparts. According to the complaint, the prices of e-books have risen as much as 50 percent since the switch to an agency model.
I don’t think we need to go back through the economics of publishing argument again. There are plenty of places online that explain why paper, printing and distribution are not the major costs in (most) book production. Anyone who doesn’t believe that now doesn’t want to believe it.
Nevertheless, it is absolutely true that many ebooks are on sale at a higher price than the hardback edition, which to most consumers must seen absolutely crazy. Why is this?
Well, the “agency model” thing is essentially an agreement that means the publishers have the right to tell Amazon what price they want their books to be sold at. The same agreement does not apply to paper books. So when a new book comes out the publisher sets a price for the ebook, and Amazon puts the hardcover on sale at a lower price, which makes the publisher look bad.
How did we get into this mess? Well, when you sell a paper book through Amazon they have to buy it from you. You can suggest a higher price for the book, but Amazon reserves the right to sell the book for less. That’s OK, because they are paying you for the book anyway, so if they discount the price below the amount you charged, they take the hit rather than you.
So far so good, but what about ebooks? I don’t know what happens with bigger publishers, but when I upload an ebook for sale Amazon doesn’t have to pay me a cent unless they sell copies. I can recommend a sale price for the book, but they reserve the right to sell it for whatever they want. If they decide to put it on sale at $0.01 there is nothing I can do about it, save perhaps withdraw it from sale.
What’s more, while Amazon says I have no right to decide what price they sell my books at, they insist on telling me how much I can charge for them. Specifically, I am not allowed to offer the book for sale anywhere cheaper than it is available on Amazon. (Practically speaking, that means I have to charge more for them, because I don’t have to charge VAT on the books I sell and Amazon does.)
This law suit is all about market power. It claims that the publishers, and Apple, are conspiring to fix the price of books. Well, quite possibly they are. But so are Amazon. The suit claims that Apple wanted to keep the price of ebooks high while the iPad was still struggling to gain market share. But equally Amazon wanted to sell ebooks very cheaply in order to encourage people to buy kindles. Specifically, they wanted to sell them much more cheaply than publishers were comfortable with.
There are, I hope you will see, points to be made on both sides. The publishers, Amazon and Apple are all vying for market dominance in the rapidly burgeoning ebook market. From a consumer point of view, we don’t want any of them to attain dominance. As a small publisher, I don’t want any of them to do so either.
What worries me about this suit is that it sounds very much as if it is being brought on behalf of Amazon. It might not say that, and some people who bought expensive ebooks will get money back if they join in the action. The ultimate beneficiaries, however, will be Amazon, because they’ll be able to go back to a position of selling ebooks for whatever they want.
This is the way business goes in America at times — it is fought, not in the shopping malls and on the Internet, but in courts. The way that this case goes is likely to be in part a function of which side manages to fix the state in which the case is heard, and the judge who hears it. It is going to be very expensive, and it is going to result in a whole lot more flame wars over ebook pricing. And ultimately the people who suffer will, I fear, be authors, because this is going to make it even harder to make a living from writing.