DoJ Investigates eBook Price Fixing

dave562 writes "The U.S. Justice Department's antitrust arm said it was looking into potentially unfair pricing practices by electronic booksellers, joining European regulators and state attorneys general in a widening probe of large U.S. and international e-book publishers. A Justice Department spokeswoman confirmed that the probe involved the possibility of 'anti-competitive practices involving e-book sales.' Attorneys general in Connecticut and, reportedly, Texas, have also begun inquiries into the way electronic booksellers price their wares, and whether companies such as Apple and Amazon have set up pricing practices that are ultimately harmful to consumers."

Comments

zzzz

[Hotweed Music]

Obviously providing the means to download relatively small files is cheaper than manufacturing and shipping books, so good thing something might be done about it.

Re:zzzz

[Chrontius]

A lot of the fixed costs of production must be amortized the same regarding both ebooks and paperbacks.

Marginal costs are far lower for distributers, but I need to buy an expensive electronic reader.

You never have ebooks that are sitting around taking up valuable shelf space so they get put on sale or clearance to get them to move, however, as ebooks don't really compete for finite retail space. If they go on sale, it's as a loss leader, or to get at least a little money out of price-sensitive consumers who have more time than money.

Re:zzzz

[rtb61]

Competition is the killer of ebooks. Not only do you end up with all available content, you can also add all out of copyright content to that list. Now that you have paid for an expensive eReader there is also all that other content available, like video content and of course interactive content.

They are setting electronic publishing cartel because that is the only way that they can survive, well, survive for as long as possible whilst the corporate executives suck as much money as possible out of foolhardy investors and less than honest pension funds.

The likely reality is universities will simply end up sponsoring book production, whether it be fiction or non-fiction (years down the track) and then take in donations and use volunteers for proof reading, editing and critiquing work. Many universities will share this effort by forming associations for the various scholastic styles involved.

The publisher was a middle man that assisted in providing the needed skills to link between, the author, the printer, the distributor, the retailer and the reader. When the need for a printer and rubber and bitumen distributor ended, so did the need for a publisher. The only need left is for funding, the 'one of' payment to authors to produce the work.

Re:zzzz

[Osty]

Obviously providing the means to download relatively small files is cheaper than manufacturing and shipping books, so good thing something might be done about it.

The fallacy here is that the physical cost of a book (printing, storing, shipping) is the largest contributor to its price. It's not*. For mass market books, print runs are done in such large quantities that the economies of scale bring the physical price down to pretty much nothing per book. The real cost of a book comes from people -- the author, editors, proof readers, cover artists, marketers, agents, researchers, people doing layouts, etc. That and marketing, of course, because nothing will sell if it doesn't have a million dollar marketing campaign behind it. All of the rest of that is needed for ebooks just as much as it's needed for paper books, so the net result is that from a pure cost perspective a paper book and an ebook should cost about the same (assuming the mass market paperback print copy here, not the limited-run hardcover). Also, at least currently, the big publishers are still very much stuck in a print mindset and all of their processes are geared toward a print world. This has obvious repercussions for ebooks, but less obvious is that a lot of editing that happens for a print run is done on copies other than the original manuscript, in formats that are difficult or impossible to convert back to a proper ebook (mobi/epub, not PDF, as PDF is not a valid ebook format). This is why we end up with so many poorly-edited ebooks from major publishing houses, some of which are very obviously OCRed rush jobs without even broad proof reading for obvious mistakes.

The investigation here is whether or not price fixing has taken place, and at least from my perspective it very obviously has. The agency model prevents retailers from setting their own prices or running sales. If you want to sell a book under the agency model, it can be no more and no less than the same price your competitors charge. That removes competition, and that's the problem. The funny thing is that agency pricing was just the first step in Apple's evil plot for (ebook) world domination -- first force everybody to sell at the same price as Apple, and then for step 2 charge ridiculous fees for in-app purchases of books such that Amazon et al can no longer viably work on your platform (if 30% has to go to Apple and 70% has to go to the author, and the price cannot be more than the price in the iBooks store, how can Amazon make money selling on iOS?), thus driving everybody to buy their books from the iBooks store (muahaha!). Of course step 2 failed, with 3rd parties finding loopholes or simply abandoning the platform for greener pastures, leaving Apple in a tough position. Nobody wants to buy anything from the iBooks store, and Apple can't run sales to entice new readers to buy because they're bound by the agency pricing agreements. Oops!

* This applies to large-scale publishers, not smaller houses or vanity presses. In the paper world, if you're not guaranteed to sell several hundred thousand copies you're not going to get a contract with a big publisher because they can't afford to do a small print run. Smaller presses afford it by charging more per book. In this scenario, ebooks are a huge win for smaller/independent authors because the huge cost of a tiny print run is no longer a factor. And of course let's not forget the ability to cut out the middle-man entirely. Ebooks make it much easier for authors to self-publish, depending on how much effort they're willing to put into the process beyond simply writing a book.

Re:zzzz

[Richard_at_work]

>

The publisher was a middle man that assisted in providing the needed skills to link between, the author, the printer, the distributor, the retailer and the reader. When the need for a printer and rubber and bitumen distributor ended, so did the need for a publisher. The only need left is for funding, the 'one of' payment to authors to produce the work.

The publisher also provides the marketing, editing, proofreading, typesetting, illustrations and quite a few other services that the author cannot provide themselves.

Re:zzzz

[ortholattice]

The likely reality is universities will simply end up sponsoring book production, whether it be fiction or non-fiction (years down the track) and then take in donations and use volunteers for proof reading, editing and critiquing work. Many universities will share this effort by forming associations for the various scholastic styles involved.

I think the likely reality is that university professors will continue to rearrange the chapters in next year's version of the Calculus 1 textbook, making it incompatible with this year's so there's no resale value, and sell it for $150.

Re:zzzz

[Liambp]

"The publisher also provides the marketing, editing, proofreading, typesetting, illustrations and quite a few other services that the author cannot provide themselves."

This is an important point. Traditional publishers provided a lot of valuable services to authors not least of which were marketing and publicity. However in return for these services publishers asked a very high price - up to and sometimes even including all ownership of the creative work. They got away with this because of the monoploy power they held due to the huge barrier to entry caused by high printing and distribution costs. Ebooks have effectively eliminated printing and distribution costs and have undermined that entire business model. I don't think traditional publishers can continue as they are now that their main source of power is vanishing. The question as to who will take over from publishers as the dominant power in the market is as yet unresolved:

In my favourite scenario it will be the authors themselves. A small number of successful self published authors are showing this is possible and when a superstar like J K Rowling opts to self publish you have to take it seriously. Unfortunately the much larger number of poor quality self published works makes me suspect that most authors lack the knowledge and skills to critically evaluate, edit and market their own works.

In my least favourite (bud sadly more likely) scenario it will be a small number of (possibly only one) mega online retailers who will own the market.

As for the publishers, well everything they used to do will probably become just a service for hire.

Re:zzzz

[TiggsPanther]

Obviously providing the means to download relatively small files is cheaper than manufacturing and shipping books, so good thing something might be done about it.

The fallacy here is that the physical cost of a book (printing, storing, shipping) is the largest contributor to its price. It's not*.

The problem with ths fallacy, though, is that it is reinformed by the retail side of it. Hardback are pricey, paperbacks are cheaper. Hardback prices still stay at the same price even after teh paperback comes out, therefore hardbacks cost more. Therefore printing is a key factor in cost.

The conclusion may be false, but it is logical given the perception of the facts at hand.

There is also the matter of value.

Personally, I don't mind paying close to paperback prices for an ebook. Hardback prices, on the other hand, make me want something persistent. Maybe if the file was DRM-free. Maybe.
But hardback pricing for less functionality than a paperback? It's just not worth it.

Re:zzzz

[Luckyo]

You forget the single most important part of publishing: it provides stable(ish) income to the author when his royalties do not. Income such as advance payments.

Re:zzzz

[Pastis]

So according to you
* printing, storing, shipping costs are not a large part of the book price as Extra costs (marketing, etc) are to be applied
* this is only valid for large scale sales as low scale aren't envisioned due to poor viability
* because of large scale, they need to have large marketing costs, increasing the cost ratio of these Extra activities
* because of large scale, publishing costs get lowered per item, thereby reducing its ratio

The publishing costs are just low per item because the system is focusing on large scale printing to actually lower the distribution costs per item...

Aren't you just describing an inefficient system that justifies itself ? I say cut the inefficient part.

According to http://ireaderreview.com/2009/05/03/book-cost-analysis-cost-of-physical-book-publishing/

And author's get 8/15% of a book. That's a bit small to me. And that's in part caused by this inefficiency.

Re:zzzz

[will_die]

The market for ebooks has people who have disposable income, they purchased a machine to read books from, and are known to purchase the higher costing ebook version. Why should they not increase the amount of money they make when the market will allow it?

Re:zzzz

[Quirkz]

1) Editing. Writers cannot edit. If they could edit they would be editors. If they could do ANYTHING else they would do it.

Close, but not quite. I can write. I can edit. I cannot edit my own writing, and I think that's the case for almost everyone. It's not that they don't have the skills, it's that they can't get the right perspective on their own work.

How do they decide what to investigate?

[mykos]

There isn't a lot of consumer outcry about ebook price fixing, but there's quite a bit of complaints about telecom price fixing. Any chance we could get that looked into?

I always wondered...

[Mitreya]

How can the electronic copy of the book cost more than paper version of the same? (Just like audio tapes used to cost much less than CDs)

I guess that's unfair book pricing in action
Although I am unsure what they can do about it. Amazon can increases prices if they want to, can't they?

About time

[Anonymous Coward]

Nobody is dumb enough to believe that a single 400KB PDF that can be sold an infinite number of times over, costs more per unit than a paper book that takes materials, manufacturing, distribution and storage for every copy sold. So why do the publishers and online retailers think so? They need their greed checked. Go D.O.J.!

Re:About time

[Richard_at_work]

That has nothing to do with what the DOJ are investigating - they can't stop a publisher or retailer from setting their own price at a rate you deem "greedy", but they can stop what Apple is attempting to do in saying "you cannot price your book cheaper anywhere else than the set iTunes price - if you do that you will cease to be able to sell on iTunes" while still adding an extra 30% cost over other outlets.

Similarly, the publisher can set it's wholesale price but cannot set the price every retailer must sell for, retailers can pick their own prices and even sell at a loss.

So it's not about high prices or greed, it's about control of the market.

Price is too high Price fixing

[Boscrossos]

Although I don't disagree with the posters before me that the price is too high, that's not what's at stake here, I think. Price fixing does not mean a company setting a price too high. It means multiple companies, together representing a large majority of the market, conspiring to all keep the prices high, thus eliminating the normally healthy effect of competition, with the prupose of making more money for all. If Amazon wants to sell its ebooks for more than the manufacturing costs plus some profit, that's perfectly fine and nothing wrong with it. However, if they make a secret arrangement with all other major ebook players, that is not, because then competition is bypassed, and customers are cheated by cartels.

Basic economics....?

[Anonymous Coward]

That's just the result of absurdity of the 'price-fixing' idea; in a standard competitive market, the price goes down to fixed+variable costs. The problem is that for ebooks, there are ultimately negligible variable cost AND no further fixed costs involved. Therefore the "equilibrium" price for abook according to "standard model" is basically 0.

If you use standard economic model, you can prove that there is price fixing. Because the price is 0 and there is no other way that the price could long-term be higher, than implicit or explicit collusion. However, at price 0 there would be no e-books. I would suppose that in such case we should say that standard economic model doesn't apply, therefore we cannot conclude, that price-fixing is price-fixing, nor that it is actually harmful.

Re:What the publishers say...

[Anonymous Coward]

Why pay advance? Because if you don't pay an advance payment, e.g. 1/3 of royalties, the author probably won't even be willing to start to work. Remember there is competition between publishers, and the publisher who offers an author the highest advance gets the book. Would you work for 6 months or a year writing a book, without getting paid up front? Even just a small share? If your job is writing, advances are your income. You don't want to finish your work first and then get paid months after.

You probably think the book industry is some kind of money making machine. It is not. As a programmer or engineer, even entry level salaries are sometimes higher than publisher's executive salaries. Authors, with the exception of a few dozen bestselling authors, barely make amends. It is not easy to make a living writing books, or publishing books, or even selling them. If it was easy, you'd see publishing companies among the top 100 companies. Do you see any?

Hope they fix the lending system too!

[teambpsi]

While touted as replacements for traditional dead tree varieties, ebook book owners should have the same rights to lend and transfer on a 1:1 basis as they see fit.

Perhaps look at how the BitCoin "public transaction" model works to manage the lending (DRM) ??