On Wednesday the Department of Justice announced that it had filed a lawsuit against Apple and five book publishers – Simon & Schuster, Hachette, HarperCollins, Macmillan and Penguin. The suit alleges an illegal conspiracy to raise the prices of eBooks when Apple launched its iPad in 2010.
Prior to that time, publishers generally sold books and eBoosk alike to distributors and retailers on the basis of the title having a notional recommended retail price, and an actual cost price that the distributor or retailer paid the publisher.
The publisher would decide the cost price, and the retailer selling the title was free to set their own selling price, anyway they wished. They could sell a book (or eBook) for more than the recommended retail price, for less than the RRP, and even – if they wished to do so – for less than their cost price.
Amazon in particular used this pricing freedom to cap the price of eBooks at $9.99, no matter what the publisher recommended and even no matter what the cost price was. In some cases, Amazon would be selling eBooks for less than their cost price.
But when Apple came along with its iPad, it seems they went to the publishers and said ‘You should set a fixed selling price for your eBooks so that we can sell them at the same price as Amazon, and be guaranteed a profit’. The publishers generally agreed with this, and promulgated new rules for the sale of eBooks.
Ultra-hypocritically, they still allowed retailers so sell printed books at any price they liked (because Apple could care less about that) but they decreed that all eBooks must be sold at their recommended retail price.
The benefit to Apple was that instead of being forced to compete with Amazon and accept very low and sometimes negative margins when selling eBooks to be read on its new iPad, it could instead now be guaranteed a profit of at least 30% on every transaction, and a ‘level playing field’ whereby price was no longer an issue.
As for the publishers, it is less clear what they received, other than a feeling of power and control. They would have still been able to sell their eBooks to be read on the iPad, because both Amazon and Barnes & Noble subsequently released iPad versions of their eBook reading software.
It is probably fair to say that few publishers understand the new world of ePublishing, while most feel very threatened by it. Furthermore, by acting as inappropriately as they have, they are merely hastening the speed with which new book publishing models will displace and replace traditional book publishing.
For example, Amazon has accelerated its own activity as a publisher, and is aggressively attempting to get authors to bypass traditional publishers. An Amazon published book can be available more quickly, at a better price, and still give the author a better royalty, too. The publishers made it clear to Amazon that there was an adversarial relationship between them, and so Amazon is doing all it can to mount an end-run around the traditional publishers.
When the publishers announced these new terms, Amazon protested and attempted to resist, and even withdrew some publishers’ books completely from their store. But it turned out that Amazon needed the publishers more than the publishers needed Amazon, and so after some public chest beating, Amazon quietly acquiesced. All of a sudden, eBooks that had been $9.99 suddenly became $12.99 or $14.99 or sometimes even more.
This means that you can now regularly see the ridiculous situation on Amazon where an eBook will cost the same or even more than a printed book. The printed book of course costs money to print and ship from the printer to the publisher to the wholesaler to the retailer (and many times is then destroyed or shipped back at more cost due to it not selling) whereas the eBook costs almost nothing at all to distribute. eBooks should sell for much less than printed books.
A printed book also has more utility and value. You can freely lend it, you can freely photocopy parts of it, and you can eventually sell it or give it away to someone else. eBooks suffer in comparison with almost none of these features available at all; but still may end up costing more than the print book. These are all more reasons why eBooks should be priced lower than, rather than higher than, printed books.
How outrageously unfair is it that eBooks are sometimes more expensive?
Well, happily, the US Department of Justice stirred and after investigating, announced on Wednesday it is filing suit against Apple and the five publishers named above. Bravo.
Three of the five publishers (Simon & Schuster, Hachette and HarperCollins) have already pre-negotiated a settlement; if approved by a judge, this would see them agreeing to return back to the previous pricing methodology and would hopefully in turn see eBook prices to us as customers/readers drop down some.
Two of the five have also pre-negotiated a settlement in a parallel action being brought by 16 state attorneys general, that would have them paying about $51 million in restitution to customers who had paid too much for eBook purchases. Simon & Schuster is believed to be negotiating a similar settlement with the state AG’s too.
The other two publishers – Macmillan and Penguin – did not agree to a settlement, and neither has Apple, so both the DoJ and state AG cases will proceed against them.
This promises to be a major victory to us as eBook buyers and readers. And hopefully holdouts Macmillan and Penguin – and instigator/holdout Apple – will get massively penalized for their actions over the last two years artificially inflating the cost of eBooks.