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Almost Everyone is Wrong About Publishers Raising the Price of Agency eBooks

I was watching the latest O’Reilly podcast last night when I had an epiphany.

Joe Wikert was interviewing Simon Lipskar, the President of the Writers House literary agency, on Simon’s opinion of the current anti-trust lawsuit against the Price Fix 6. Simon has in the past made several cogent arguments that the Price Fix 6 didn’t actually raise ebook prices. He cites various details about the ebook market,  does a before and after analysis (based on the Amazon bestseller’s list), and he disputes whether the 5 publishers really had the market power that everyone assumes.

Today I realized that most all of his arguments were irrelevant. In fact, none of the arguments made based on the general situation of the ebook market are relevant.

The thing is, I can’t recall that the DOJ ever accused the Price Fix 6 of raising the prices of the ebook market; the lawsuit was only over whether they conspired to raise their own ebook prices. So any attempt at rebuttal based on the market as a whole is simply irrelevant.

Oh, and do remember that the anti-trust lawsuit is over whether the Price Fix 6 conspired to change the market, not whether they succeeded.  All these arguments that say that there was no effective change are not disproving the conspiracy; they’re simply calling the conspirators stupid. Chew on that.

I also think the phrase "raise ebook prices" is itself something of a misnomer. While it’s easier to say that that the publishers were in it to raise ebook prices, you know and I know it’s not that simple. The ebook market is too complex for that statement to have ever had any real meaning, and I think people use it as something of a red herring. It distracts from the real situation, which is that the 5 publishers conspired to gain control of ebook prices so they could prevent discounting. They wanted to set the prices themselves and not let the market (Amazon) decide what their ebooks should sell for.

And I bet I can prove that they were successful in conspiring to block Amazon from discounting ebooks. The following 5 ebooks would likely be selling for less today if not for the price fixing:

Note that I selected one ebook from each of the conspiring publishers. I would argue that Amazon might have discounted all these ebooks had they been allowed to do so. And that means these 5 ebooks stand as representations of the many ebooks which the 5 publishers are artificially maintaining a high price.

So, if you accept a different description of what the Price Fix 6 wanted to accomplish, it suddenly becomes a lot easier to prove that they had succeeded. All I had to do was point at the Kindle Store, and rebutting the fact of all those ebooks is going to be much harder than debating details about the ebook market.

I look forward to watching people try. What do you think?

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Mike Cane August 7, 2012 um 7:20 am

Random House did not conspire (apparently they understood the meaning of that word when the other five didn’t). When they finally signed with Apple, the price of The Girl with the Dragon Tattoo went up dramatically at Amazon and elsewhere.

fjtorres August 7, 2012 um 8:03 am

Valid point.
The validity of the antitrust suit does not depend on their *success* at the crime, merely on their recourse to crime to achieve their ends.
Bumbling criminals are just as guilty as the successful ones.

Karl August 7, 2012 um 4:53 pm

The best part is the Kindle version is $9.99 (normally $11.99) but a new paper back thru a third party Amazon store front is $5.99.

Tom Semple August 7, 2012 um 6:11 pm

There was so much about Simon’s arguments that I found very unconvincing and frustrating to listen to. For example, it doesn’t matter that average ebook prices have gone down, or that Amazon has competition now when they did not before.

The fact is that customers of all ebook retailers are paying higher prices for many bestsellers under Agency pricing than they would if retailers were free to set the prices. That is not disputed, and is the whole point of the D0J suit. And it appears that the publishers probably colluded in setting these higher prices, clustered around the $12.99 and $14.99 price points Steve Jobs is said to have suggested (or demanded?), which would be illegal. Did any of the publishers think $11.99 and $13.99 would be more attractive, and try to gain an advantage over their competitors? No. Because they colluded and agreed not to do that.

If it were just a matter of getting paid what they want to get paid, they had that power already via the wholesale model. And Amazon has always made a profit at selling ebooks, even when they were losing money selling some at $9.99.

Simon’s example to 'prove' ebook prices were going down was pretty irrelevant as well as being statistically insignificant. It detracted from his argument.

Richard Adin August 8, 2012 um 7:54 am

What does it matter if Stephen King’s new novel is priced at $10.99 and Brad Thor’s is at $14.99. Neither is substitutable for the other. This is, to me, the primary failure of the pricing arguments: on the one hand, the assumption is that books are substitutable for each other — if the price for Thor is too high, people will buy King’s lower-priced book instead — and on the other hand, that each book stands on its own — that is, the reader of Thor’s book will not read King’s book and so the price of King’s book is irrelevant, only the price of Thor’s book is relevant. Without resolving this dilemma, pricing between books is immaterial and so there can never be true price competition across books.

The claim that consumers are entitled to lower-priced "bestsellers" is also specious. If bestsellers are to be sold at 60% discounts (off list price), then why isn’t the same discount required to be offered to the nonbestseller that I’m interested in? What makes bestsellers a "class" worthy of forced discounting but not backlist books?

Smoley August 7, 2012 um 6:43 pm

As I look for my tinfoil hat, I have a different theory. The A6 needed a way to ensure that the retailers for paper books weren’t pushed out of business – namely Barnes & Noble.

You see, if you look at BN’s financials you’ll notice that their eBook business is what keeps them in the black (or less in the red, as the case may be), but eBook sales only account for ~25% of all book sales in the US.

BN’s retail stores and online business is a huge outlet to move paper books in this country and something that these publishers cannot afford to lose. Since BN needs eBook profits in order to survive, the publishers are therefore inclined to keep the retail eBook sales prices fixed to prevent them from going out of business in a head-to-head price war with Amazon.

fjtorres August 7, 2012 um 8:13 pm

If the Conspiracy six wanted to do for B&N what they chose not to do for Borders, it would’ve been cheaper (and actually legal) to give them better discounts than Amazon.

More, let’s not *conveniently* forget that the retailer that *mediated* the price fix and intended beneficiarywas Apple.
As the quoted emails make clear, B&N was nowhere on the pubishers' minds. Any benefit to B&N was incidental; the intent was get get Apple to serve as a counter to Amazon and Apple would only do so under Agency price fixing with a Most Favored Nation clause.
Retconning the consiracy as an effort to help B&N is a load of rotting baloney.

Fbone August 7, 2012 um 8:49 pm

How do we know the publishers don’t offer B&N better terms than Amazon?

In the end it doesn’t matter, though. Amazon is happily willing to price match or sell books below cost.

Nate Hoffelder August 7, 2012 um 8:56 pm

Because Amazon also has a most favored nation clause in all their contracts. They’re getting the same deal as B&N.

fjtorres August 7, 2012 um 8:58 pm

Didn’t the Price fixers give Amazon the same Most Favored Nation rights they gave to Apple? (hint: yes) That precludes giving B&N better terms.

And no, in the end it doesn’t matter because Amazon’s overhead and costs are significantly lower than B&N’s so unless the publishers gave B&N a big advantage–out of *their* pockets–Amazon would still prevail.

Fbone August 7, 2012 um 9:09 pm

I was referring to paper books. Ftorres suggested publishers give B&N better terms. They can on printed material. My question was do they?

If I meant ebooks, I would have wrote ebooks.

Fbone August 7, 2012 um 9:18 pm

Amazon will always prevail unless some catastrophe occurs. According to Amazon’s 2011 10-K filing they earned almost $6 billion from advertising and other "web services." B&N earned a touch over $7 billion total.

When you have a growing highly profitable revenue stream like advertising and hosting services you can afford to have many "loss leaders." Probably the entire book and Kindle division.

fjtorres August 8, 2012 um 6:46 am

$6 billion? Hmm, those KSO ads must be bringing in decent revenue…
It’ll be interesting to see how they monetize their new Gaming Studio beyond creating exclusive content for the FIRE tablets.

Nate Hoffelder August 7, 2012 um 9:00 pm

What’s more, B&n was striking deals with publishers in 2009, and that was before we knew Borders was on the way out or B&N needed help.

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