As you may have noticed, the courts in the USA have declared that the Agency Model, which was a system in which publishers set the selling price of ebooks, is illegal as it is a form of price fixing.
Note added later:
If you read to the end of this post you will find a comment from Rich Adin, in which he corrects several mistakes on my part in this post. I thought briefly of deleting the post, as I saw no benefit to anyone in a post with incorrect information, but then I thought again, and decided to leave it up as Rich gives a pretty good breakdown of what that legal decision actually means…..
So please do read what he has written as well as what I have written.
For us consumers this is obviously good news as it means that ebook sellers are now free to set the prices of the ebooks they sell us at whatever level they wish.
What this means in practice is that ebook sellers who wish it, can now happily sell ebooks to us at prices below the price they pay to the publishers for these ebooks.
You might well wonder why on earth any company would want to sell us ebooks at a loss, a reasonable question. Obviously most book sellers wouldn’t even consider doing this, but the big volume sellers can afford to do this – for a while at any rate.
The fear on the part of publishers and smaller ebook sellers is that people will buy Kindles (also sold at a loss) and then buy all their ebooks from Amazon, who can afford to sell ebooks at a loss in order to build up their position in the market… It is called Loss leader selling, much as you see at your local Supermarket on a regular basis.
The fear is that this will cause the smaller ebook sellers out of the market, leading to a near monopoly situation for Amazon, Apple and Google in the ebook market, which in the long run will not be in our interest as consumers either… A broad choice of suppliers is healthy for the market.
The fear is that once this monopolistic position is realised, they can then charge us whatever they wish for ebooks, in the happy knowledge that we will have to buy from them, or simply not be able to buy ebooks…….
I can’t make up my mind yet on this one, as I see the obvious benefit to us in cheap ebooks, but also wish to support a free and wide market in ebooks, and I am darkly suspicious of huge corporations like Amazon and Apple and their motivations in any selling system they might espouse.
Share with us:
What is your take on this situation?
September 10th, 2012 at 7:23 pm
Tony, I’m sorry to have to write this, but there are several errors in your article.
First, the U.S. courts HAVE NOT declared the agency model illegal. The agency model is, in fact, very legal in the United States. What the settlement agreement has done is said that for the 3 settling companies, they cannot use the agency model for 2 years. After the 2 years, they can return to the agency model as long as they do so independently.
Second, the order the court entered was an order approving the settlement agreement between the Department of Justice and the 3 settling publishers. It was not an adjudication of the facts or the merits/demerits of the case. That is yet to come, assuming the trial proceeds next June. But even then, the agency model is not in issue. All that is in issue is whether the publishers and Apple colluded. That is why Random House is not a party to the lawsuit.
Three, ebooksellers are NOT now free to set prices at whatever level they wish. There is a condition: an ebookseller must be profitable over a publisher’s whole line of ebooks over a 1-year period. The effect will be to limit the amount of discounting. Amazon would have a problem selling a million copies of a bestseller at a below cost price, which is what it was doing with the $9.99 pricing, because it could not be sure it would sell enough other books by that publisher to make overall sales of that publisher’s ebooks profitable.
Fourth, the settlement does not prohibit publishers from changing the prcing dynamic in such a way that it would be fiscally impossible for the steep discounting by ebooksellers to occur. The first sample of this is the pricing on the forthcoming J.K. Rowling adult novel. The novel is setting a new price threshold at $35; B&N and Amazon have discounted the ebook 49%, which brings it to $17.99 — a far cry from the old $9.99 price and higher than what would have been under the agency system (a maximum of $14.99).
I do not think consumers will end up benefitting from the ill-conceived settlement.
September 11th, 2012 at 1:59 pm
Hi Rich, as you will see, i have added a note to this post telling people to read your comment, and explaining why I didn’t simply delete the post. Many thanks for pointing out my mistakes, I would rather have errors pointed out than left alone and unremarked.
March 1st, 2013 at 10:56 am
Kobo Books is next.