Crikey, eBook Prices! … Beware Predators

Crikey posted an interesting article last week on the subject of agency pricing for eBooks and the sudden increase in some eBook’s prices. The article makes some very good points but it also overlooks a couple of issues.

The first one that “An international agreement between publishers has driven massive increases in the price of e-books for Australian readers” is not exactly accurate. Yes agency agreements have seen the price readers pay for some eBooks go up but the price of the eBook has not necessarily increased. Under the agency model retailers must sell the eBook at the price set by the publisher. Under the traditional wholesale model the publisher sets a list price (suggested retail price) and retailers can discount off that. Whether an eBook is sold under agency or wholesale the list price stays the same. To say an agency agreement has driven prices up is incorrect, the agency agreement just means the eBook is sold at is originally set price and cannot be discounted by the retailer. But it can be discounted by the publisher. You will not see flat pricing under agency (not if the publisher has half a retail mind). There will be days, weeks or even months when the price will drop, quite considerably in some instances, before going back up again.

The agency model is not new. Everything Apple sells is under the agency model from Apps to music from Macs to iPads. In fact many electrical goods and kitchen appliances are sold in Australia under a similar agency model. Yes Apple instigated the agency model for eBooks when they launched iBooks in 2010 but it was not “a deliberate attempt by Apple to destroy Amazon’s dominance of e-book sales”. They achieved that just by entering the eBook market as did Kobo, Barnes & Noble, Google and every eBook retailer.

Apple does everything by agency. The reason the big major publishers jumped on board was because Amazon’s eBook pricing was destroying their business model. And yes there is a business model for book publishing both print and digital. There are costs that need to be recouped. Just because a book is in a digital format does not mean it cost 3 cents to make. An eBook does not exist in a separate world to the print book. They share the same costs of production as well as marketing.

Publishers’ sales of $US25 hardcovers were being eroded by Amazon selling the eBook a $US9.95 regardless of the price (retail and cost) that the publisher had set. The agency model allowed publishers to gain a 70/30 split (publisher/retailer) on eBook sales, much higher than the print book split which can be up to 45/55 for Discount Department Stores (usually 60/40 for bookshops). This meant an eBook at $US14.95 agency vs a $US25 hardback would be at a “price of indifference” (indifference for the publisher NOT the retailer). Unfortunately there are some publishers who have not priced their eBooks at this “price of indifference” and Crikey can rightly argue that they have “gouged the customer” (both reader and retailer).

The real story is not one of eBook rip offs and global pricing inequality. The real story is that Amazon is actually predatory pricing (see ACCC definition). They are setting “prices at a sufficiently low level with the purpose of damaging or forcing a competitor to withdraw from the market” and they are doing this with a proprietary eBook format and device. This has also made it next to impossible for new competitors to enter the market. If it wasn’t for the agency model there would be a lot less competition in the eBook market. Barnes & Noble would not have been able to claw back marketshare nor would Kobo have made the inroads it has made and I doubt there would be independent booksellers selling eBooks like you have in the US with Google or here via and ReadCloud.

While many consumers enjoy Amazon’s predatory pricing the end result is not good. Once competition is wiped out Amazon “can disregard market forces, raise prices and exploit consumers” something that can be more easily done if you have already locked your customers in to a particular format and device. It is a complex issue and one that is far from over. But it is a lot more complicated than is being reported. What is at stake is a competitive market which ultimately is good for authors, publishers, retailers and most importantly readers.

14 thoughts on “Crikey, eBook Prices! … Beware Predators

  1. “They share the same costs of production as well as marketing.” Hear hear. Good on you Jon for writing this piece. What I wonder is how Amazon gets away with this predatory pricing – is it not illegal?

    I think this every time I see an online comment to the effect that any e-book costing more than a cup of coffee is a ripoff. I do wonder what has made consumers/readers so darn entitled. I know many well-off people who think nothing of pirating literally hundreds of movies and now there seems to be an attitude that books should be almost free as well.

    It’s remarkably crude to be able to understand that a cup of coffee should be paid for but not the paper or book that makes it such a pleasure.

    I was stunned when I read the Crikey article at the seemingly willful ignorance over the longterm consequences of Amazon’s predatory pricing. I’m also surprised that publishers seem so unable or unwilling to defend themselves. I’ve noticed that Australian publishers seem to stay silent when articles like this are published.

    1. 90% of pricing in retail is perception and we as a book industry are failing public perception on price. Part of this is the exchange rate and the internet but a big part of it is what has been happening in our industry over the last 10 years. The growth of books sales through Discount Department Stores like Big W and Target has contributed to consumer’s perceptions of book prices. Books have traditionally been perceived as having an intrinsic value but when they are dropped into department stores by the pallet load and discounted up to 60% compared to traditional bookshop prices then that intrinsic value is eroded. We already had a problem with book prices before there was parity with the US dollar, the exchange rate and free postage was the bright spotlight that exposed the issue. eBooks at 99 cents have stripped this intrinsic value completely.

  2. How do ebooks share the same production costs as physical versions? Surely it costs far more to print and distribute physical copies of books then it does to host a server supplying a download of a digital copy of a book?

    1. Production also includes editorial and design. And the printing and distribution of the print book will be included in the eBook because they are treated as one book not two separate entities. The eBook will cannibalize the print book sales but not it’s costs.

  3. Good article Jon…shame you can’t clone yourself and spread the message more widely. Most consumers don’t know all the behind the scenes stuff and they just base their decisions on the little bit of information they do have (i.e. Amazon cheap). I am dismayed that Crikey would publish something so poorly researched.

    I like to think that if information gets out there it will change people’s behaviour (you’re largely responsible for changing mine from when you wrote last year about the costs of doing business in Australia and started me thinking, I hardly ever buy from BD now – only when I think a title I want to read will never be published here, otherwise it’s local stores for me. But in an online crime fiction group I belong to a recent discussion over some of Amazon’s more hideous behaviour has been met with a chorus of “we don’t care we buy their cheap books”. Sad.

    But I can’t possibly be the lone person willing to change behaviour if given enough credible information so keep plugging away.

  4. So what your saying Jon is that although it might be a little bit cheaper to produce an ebook ie it doesn’t have the physical cost of paper nor the distribution costs (incl. freight over great distances) that ebooks it still has to carry the distribution and materials cost of the paperback as they are treated as the same product?

    1. Correct. The eBook doesn’t exists it its own right except of course an eBook only book where you probably can claim a different, cheaper price (but there is still design, editorial and marketing to factor in).

      99 cent eBooks are 99 cents for a reason….
      “Is it a good book?”
      “No, but it’s cheap”

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