The underlying problem with the ebook market is the way publishers mandate the use of DRM.
Under the old model, Amazon was free to sell ebooks under cost, with the goal of quickly establishing a Kindle monopoly and placing itself in a negotiating position that would eventually allow them to capture most of the profit in the ebook market. The publishers and Apple introduced the agency model to prevent Amazon from dominating ebooks.
Amazon's strategy wouldn't have worked if not for DRM. If the publishers instead mandated that ebooks couldn't use DRM but let Amazon sell at any price, there would be no reason for Amazon to sell below cost because customers would be able to migrate to another vendor's platform at any time.
DRM is nasty, but it has nothing to do with Amazon's model. The Kindle exists to sell books, not the other way around. You can read and buy Kindle books on an iPad or a computer, and (on average) they're going to make one hell of a lot more profit on eBooks than cheap consumer electronics.
DRM is what provides the barrier against switching between platforms. I have around 200 Kindle books. If I wanted to switch to another platform, I'd either have to carry two e-readers or lose access to a big chunk of my library.
It also makes me less likely to buy from smaller vendors, because the music industry's history shows that when publishers with DRM-encrypted products go bankrupt, they tend to shut down their DRM servers and their customers lose access to their purchases.
To be honest, a large chunk of kindle books on amazon.com don't have DRM enabled. Try converting your kindle library with calibre and be surprised that some of your paid books don't have drm. Calibre will fail on books with drm enabled unless you install a 3rd party plugin.
For me, I choose to keep on using amazon.com not because of DRM switching costs, but the connivence, library breadth and syncing services on many devices. Doing it manually with calibre and a nook is just a pain.
Is this why ebooks in general are so expensive? I always wondered why digital copies cost as much as the physical ones, and I always thought the publishers were just being greedy.
Note that there are 17 steps in this process for paper books ... and around 15 or 16 for ebooks. And the cost of physical goods (ink and paper) is less than 10% of the cover price.
Steps 13, 14, 15, and 16 are all unnecessary in the electronic world. Perhaps most of step 8 too, since the ARCs will be sent out electronically.
The actual materials are only part of the cost advantage ebooks have over print. Among the other advantages are:
- Real estate for book stores.
- Salaries for bookstore employees.
- Shipping, packaging.
- Inventory management.
- Bookstore profit margins.
- MUCH simpler typesetting, since pagination is mostly handled by the device.
So by saying it should only be ten percent of savings you are really understating the advantage by quite a bit.
And, frankly, I have no idea how they hope to avoid a charge of horizontal collusion for that alone.
It seems to be an open secret that the big publishers are coordinating their discussions with Apple and Amazon. And that would seem to be an open-and-shut case of collusion.
>>>And, frankly, I have no idea how they hope to avoid a charge of horizontal collusion for that alone.
That is why Random House did not leap in with the other five of the Big Six. To avoid that appearance.
It's also the same trick Apple is using by making iBooks a download, not an app already pre-installed on every iDevice. They can claim their app has to be downloaded just like their competitor's app. But that does not obscure the fact people can order eBooks only with iBooks, not their competitor's apps. Apple is still guilty of Restraint of Trade in eBooks and that should be the next examination by the DoJ.
Apple has already come under investigation, once for actively prohibiting people from using third-party music managers [1] and once for unfair contracts to limit publishers to use only iTunes for their music [2].
Throughout most of their history, Apple has been protected from the kind of anti-trust onslaught that has forced Microsoft's hand in some decisions, because Apple hasn't ever controlled significant influence over a market. This has changed in the last decade, and at some point Apple will have to grasp the concept of a legal monopoly or be shown what "illegal monopoly" really means.
Pushing prices down is good for the consumer, keeping prices high is bad for the consumer. Even as a producer, I would prefer lower prices with higher volume of sales. Amazon may be a near monopoly but they are forcing prices down not up.
I think if the contract term "cannot sell for a lower price through another vendor" was made illegal, it might make this problem a little easier to solve.
I've always held that the "agency model" pushed by Apple is anticompetitive. The argument for it is that ebooks are different to physical books in that they are infinitely copyable (which is obviously true) and that leads to books being priced at or near cost and publishers don't want to be "commoditized" in that way.
But that's a BS argument. A traditional bookshop will have a 100% markup for recommended retail price to cover costs (store, employees, utilities and so on). The publisher's half will be divvied up a number of ways including editing, printing, distribution and let's not forget the author (10% or less).
Amazon of course reduced their overhead (no physical store) and increased their volume cutting down that markup significantly. They may have through volume been able to negotiate a lower cost from the publisher but I have no evidence of that.
Ebooks change the model drastically. Printing costs disappear. Editing, the author's cut and the publisher's profit remain. Distribution costs are basically zero. What's more, ebooks have no resale market (unlike, say, college textbooks). This reduced utility should lower the sticker price.
Yet publishers seem stuck in a mindset of looking at nothing more than the retail price as some kind of metric for profit. Publishers should be embracing ebook distribution. It lowers their costs and (in theory) increases their profit through no printing and distribution costs.
Their needs to be structural separation between wholesale and retail market segments and that means publishers shouldn't be able to dictate the retail price. Period.
The real argument for the agency model is that the publishers own the rights to publishing and can set terms as they wish. If they want to wholesale ebooks they can do so... and they can also decline to do so if such is their desire. If they want to use an agency model they can and can also decline to do so.
The publishers presumably want to sell books using the model that favors them (cf Adam Smith) and so they have chosen the agency model.
What very well may be anticompetitive about this situation is for all the large publishers to get together and collectively move to a model that knowingly results in higher consumer prices. IANAL but on it's face that looks pretty bad and I'd guess based on reported emails that they've pretty clearly crossed the line on price fixing laws.
Presumably their defense is that the initial "lower prices" were loss leaders by monopolist Amazon not true market prices and there's probably some truth to this and that's probably why we'll see a non-trivial but non-blockbuster settlement in the low eight digits.
>>>The real argument for the agency model is that the publishers own the rights to publishing and can set terms as they wish.
You lack knowledge of publishing. This model was struck down by the courts in the 1970s. Had it still been in effect, there would have never been a videocassette rental market -- which some studios, notably Warners, tried to subvert by tiered pricing for cassettes that were deemed "Rental Only."
Book publishing is trying that trick now too: Do you like the fact that Random House has jacked up the pricing of eBooks to extortionate levels to public libraries -- many of which are supplementary funded by tax dollars, perhaps even yours? It's the same damn eBook you can buy for yourself, only 4x or more in price. This while libraries pay far less for print books.
Listen, unless you've an understanding of the history of book publishing, all you've got as an argument is some ideology, not fact.
And the fact is that the current arguments in book publishing go waaaaay back in time, as far back as 1922:
The most damaging thing that ever happened to book publishing is something none of you know about. A change in the tax laws in the 1970s that classified book inventory the same way as factory inventory, thus making it no longer economical to keep books in print and in warehouses. This led to a sweeping change in the availability of books, creating shorter print runs and far less availability of books published even within a year.
None of you should be sympathetic towards the publishing industry. The obstructionism that is dooming them is the product of their own inaction and action.
As regards technical publishing at least, you drastically overestimate the cost of printing. A $30 book costs a couple of dollars to print, depending on the size of the run. This is to say that removing printing from the equation has very little impact on the cost of professional book production. Editing and production are the real costs, and they're not insignificant.
Under the old model, Amazon was free to sell ebooks under cost, with the goal of quickly establishing a Kindle monopoly and placing itself in a negotiating position that would eventually allow them to capture most of the profit in the ebook market. The publishers and Apple introduced the agency model to prevent Amazon from dominating ebooks.
Amazon's strategy wouldn't have worked if not for DRM. If the publishers instead mandated that ebooks couldn't use DRM but let Amazon sell at any price, there would be no reason for Amazon to sell below cost because customers would be able to migrate to another vendor's platform at any time.