June 20, 2013

"The Battle of $9.99: How Apple, Amazon, and the Big Six Publishers Changed the E-Book Business Overnight."

Publishers Weekly has put out a $1.99 ebook.
Little did Apple know when it introduced the iPad in 2010 that it would be setting itself up to land in federal court on price-fixing charges. This blow-by-blow account charts how five of America’s six largest publishers, afraid that bookselling powerhouse Amazon's $9.99 price for Kindle e-books would undermine the industry, spent a few frantic weeks in early 2010 deep in negotiations with Apple to introduce a new business model for e-books, just in time for the launch of the iPad and the iBookstore.
ADDED: I was dreaming when I wrote this/Forgive me if it goes astray/But when I woke up this morning/Coulda sworn it was judgment day/The sky was all purple/There were people running everywhere/Trying 2 run from the destruction/You know I didn't even care/They say two thousand one zero party over/Oops out of time/So tonight I'm gonna read like it's nine point ninety-nine...

76 comments:

damikesc said...

So, the Progressives favorite company has jacked up the price on books to help Big Business.

How will they handle the rank hypocrisy?

jr565 said...

This is bullshit. Amazon was the one engaging in predatory pricing undercutting the publishers. Apple's agreement with them re established fair prices that publishers wanted. Amazon is the villain here, and was using its platform in a predatory platform to gain advantage

Bryan C said...

"Amazon was the one engaging in predatory pricing undercutting the publishers."

That assumes that publishers should be allowed to collude against retailers to fix prices on their books.

Mark said...

damikesc, whose favorite company? The one Rush gives products away from and regularly gives high praise to on his show?

I never realized Rush was a progressive.

Tim said...

Prince is underrated.

MadisonMan said...

Mommy....why does everybody have a bomb?

creeley23 said...

Amazon is selling Fritz 12, an industrial-strength chess program that plays and analyzes at a grandmaster level, for $6.99.

I haven't played serious chess since college, but I keep an occasional eye on chess software packages and mostly they are toys that play better and better chess as the hardware improves, but aren't really tools for someone studying the game.

Fritz 12 is a professional chess rig that you can now buy for the cost of a treat at Starbucks. I'm flabbergasted.

damikesc said...

Amazon was the one engaging in predatory pricing undercutting the publishers.

As a consumer --- why should I give the first fuck about publishers? I should be gouged so they can make bigger profits? Are there other business where collusion to increase prices is OK?

And, Mark, if you failed to notice the Left has a deep love affair with Apple, I don't know what to tell you. It's not a secret.

Methadras said...

What is the collusion? Amazon is willing to sell at that price, the others did not. Why is it apple's or amazons fault?

jr565 said...

That assumes that publishers should be allowed to collude against retailers to fix prices on their books.

Is setting prices colluding against retailers?
What Amazon did was predatory pricing.

From DOJs initial complain against Amazon:
alleges that Amazon ‘lowered substantially the price of newly released and bestselling ebooks,’ and according to the CIS, Amazon bought ebooks from publishers for “a discount (usually around 50%) off the price printed on the physical edition of the book (the ‘List Price’).” Thus, for example, an ebook with a List Price of $26.00 would be sold to Amazon for $13.00 and Amazon would sell that copy to a consumer for $9.9947 — a marginal loss of over $3.00 per unit. In the economics terms, this practice is known as ‘penetration pricing,’ the practice of reducing the price of a component of the system (e.g., ebooks) to initial adopters of the system (e.g., an ebook platform, such as Kindle), thereby enhancing the network effects operating in the market to spur the consumer adoption of the system. In legal terms, Amazon engaged in a clear case of ‘predatory pricing,’ an exclusionary practice that is illegal under federal and state antitrust laws.

That is exactly what they did. If charging the price it's supposed to be is colluding to raise prices, then you essentially are making predatory pricing the norm.
And amazon shouldn't get away with that simply because they want to sell Kindles.

damikesc said...

If charging the price it's supposed to be is colluding to raise prices, then you essentially are making predatory pricing the norm.

The price is the MSRP.

The "S" stands for "suggested".

It is hardly a requirement.

If a store buys a produce wholesale and sells it at a loss, that is the store's decision. The publishers already got their money when they sold the product to Amazon in the first place.

jr565 said...

damikesc wrote:
As a consumer --- why should I give the first fuck about publishers? I should be gouged so they can make bigger profits? Are there other business where collusion to increase prices is OK?

Because publishers are the ones who put out the books you supposedly want to read. You shouldnt' be gouged, but you should pay a fair price for a book or good or service if you want to buy it.
And one company shouldn't use other companies products and undercut them to sell their own product. Most other companies weren't putting out Kindles at the time nor had a bookstore that sold ebooks. I don't think Barnes & Noble did the same thing.
So, now you go to Apple, and Apple says what is the price you want to sell your book for. That is the price we will sell your books. But if someone is seilling it for cheaper we also want to be able to sell it cheaper too. THe Apple way is the fair way to sell books. The Amazon way is the predatory way.
If the issue is prices and apple is colluding to raise prices, well why are prices so low? Because Amazon artificially lowered them below the cost to buy the book from the publisher, which is devaluing the product. How will other companies not selling books at below cost going to compete with Amazon?

Crunchy Frog said...

And amazon shouldn't get away with that simply because they want to sell Kindles.

Dumbass, it's the other way around. Amazon takes a loss on every Kindle they sell. Kindle apps are free on every hardware and software platform out there, including smartphones. The last two books I read were consumed wholly on my Blackberry.

Amazon sells books, at a discount. That's their core business model, and has been for as long as they have been in business.

Publishers are about as useful as the suits in the record industry. They justify their high prices through the cost of printing, binding, and shipping. Well, if you can deliver the same content electronically, how do you justify charging upwards of $30 a book? You can't.

OBTW I don't see you griping about Apple selling songs on iTunes for 99 cents. How is that any different?

jr565 said...

What is the outcome of switching to a publisher set pricing model for Amazons competitors?
"Presumably this will make players like BN.com, Kobo, and others very happy because, with publisher-set pricing, they no longer have to lose money on every sale to compete with Amazon."

jr565 said...

Chrunchy Frog wrote:Dumbass, it's the other way around. Amazon takes a loss on every Kindle they sell. Kindle apps are free on every hardware and software platform out there, including smartphones. The last two books I read were consumed wholly on my Blackberry.

Amazon sells books, at a discount. That's their core business model, and has been for as long as they have been in business.

Amazon was selling many new books at a deliberate loss below the cost of them buying the book. THe only way for other companies to compete with that is to also sell below cost. Amazon also has a Kindle which will supposedly offset costs. People will buy the Kindle, and then buy the books through |Amazon.
Kobo, not selling a Kindle simply has to compete with prices below wholesale which they buy their books at.

RAH said...

If Amazon choose to take a loss to sell books that is their business and not ours. I would never pay 26 dollars for an ebook. I have been buying ebooks for over 15 years and never paid above 6.99. I used to have a Rocketbook and bought from Baen 5 books for $ 15.00. The readers then suggested that the price rise to 18 so the writer could make more money.

David-2 said...

(Meade: Please be sure later today or tomorrow to post how many copies of "The Battle of $9.99" got bought via the Althouse affiliate program!)

jr565 said...

And Apple stated that if any company (Amazon) sold the book for less, Apple can sell the book for that same price.

Paul Zrimsek said...

"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." -- Adam Smith

jr565 said...

Raise prices to what? A price where a bookseller doesn't have to lose money to compete with an Amazon on pricing?

jr565 said...

Publishers are allowed to raise prices. If you don't lke the new price then don't buy the book.
Publishers are allowed to enter into a business model that doesn't force them to cannibalize their product. And I'll note that Amazon very quickly enacted the same model.

And Apple has in its plan that if its competitor does sell a book at a lower price, Apple can charge the same price so as to remain competitive. Which would mean that the consumer could still pay that lower price at Apple.

Peter said...

Surely the issue here isn't that Apple reached an agreement with publishers on price, but that the agreement required publishers to sell on this basis to everyone?

That is, Apple and the publishers didn't merely set prices for ebooks in sold by Apple- they conspired to set the price of ebooks sold by everyone.

Which surely is a prima facie case of price fixing?

(So when will antitrust law be applied to prevent unions from fixing the price an employer must pay for labor?)

Rusty said...

And amazon shouldn't get away with that simply because they want to sell Kindles.

Why not?
Once they've paid their supplier who cares what they charge for their product?


The market place is working as it should. The customer is the winner.

Rusty said...

jr565 said...
Raise prices to what? A price where a bookseller doesn't have to lose money to compete with an Amazon on pricing?

Here is where your argument fall apart.
The publisher discounts the book 100% from it's retail price of $26.00. Amazon gets it for 13.00. Which tells us that the publisher is making the book, paying the author, and making a profit at 13.00. Amazon, at its own expanse, discounts the book still further in order to sell Kindles, or whatever reason Amazon wants.
Who is being harmed?

jr565 said...

Rusty wrote:
And amazon shouldn't get away with that simply because they want to sell Kindles.

Why not?
Once they've paid their supplier who cares what they charge for their product?

Because that model favors Amazon over all other booksellers who can't compete with Amazon since to buy the book from a publisher to sell means they lose money on that sale.

jr565 said...

Rusty wrote:
The publisher discounts the book 100% from it's retail price of $26.00. Amazon gets it for 13.00. Which tells us that the publisher is making the book, paying the author, and making a profit at 13.00. Amazon, at its own expanse, discounts the book still further in order to sell Kindles, or whatever reason Amazon wants.
Who is being harmed?

Then why would publishers want to change the model? And why would they say that Amazon was cannibalizing their product?
In the case of a KOBO, I could see them not buyig certain books from companies because they know they will not be able to sell it at the price Amazon does, which means fewer potential sales, or fewer potential sellers.

jr565 said...

Apple didn't want to get into business to sell books at a loss. Publishers didn't like Amazon cannibalizing their product by selling it below cost. And Amazon's competitors didn't like the fact that they they couldn't compete with Amazon without losing money on best sellers because of Amazon artificially lowering the price on books to where noone can compete with them without losing money every time they sell a book.

It sounds like the old way only benefited Amazon.

Rusty said...

Because that model favors Amazon over all other booksellers who can't compete with Amazon since to buy the book from a publisher to sell means they lose money on that sale.


In any market place it is the buyer that determines the price.
Amazon is successful because because buyers-consumers- prefer their business model.
Publishers better get on board because Amazon is out to eliminate the publisher entirely and handle the whole writer to reader transaction with just a handling fee.
This is what innovation looks like.

Andy Freeman said...

> Amazon also has a Kindle which will supposedly offset costs.

Only if "supposedly" means "doesn't" - kindle is sold below-cost by amazon).

Moreover, the kindle is irrelevant because Amazon's ebooks aren't restricted to kindles. (I don't know if they work on nooks.)

jr565 said...

Amazon alos has groceries, video games, clothing, furniture and any other things they sell to offset costs.

Rusty said...

And Amazon's competitors didn't like the fact that they they couldn't compete with Amazon without losing money

Are you a competitor of Amazon?

Paul Zrimsek said...

If losing money is good enough for Amazon, why shouldn't it be good enough for its competitors?

damikesc said...

Because publishers are the ones who put out the books you supposedly want to read. You shouldnt' be gouged, but you should pay a fair price for a book or good or service if you want to buy it.

They already got paid when Amazon bought the books wholesale.

Their whining that a retailer made less of a profit, or even a loss, on their product is silly.

But if someone is seilling it for cheaper we also want to be able to sell it cheaper too. THe Apple way is the fair way to sell books. The Amazon way is the predatory way.

If somebody pays the wholesale price the publishers are selling them the books for --- it is, plain and simple, fair.

Unless the argument is that Amazon stole the books, which is clearly not the complaint, then the publishers have nothing to bitch about.

If the issue is prices and apple is colluding to raise prices, well why are prices so low?

It's all the market will bear. It's not like retail book sales haven't been in the shitter for a long while now. Why protect horribly inefficient businesses?

How will other companies not selling books at below cost going to compete with Amazon?

That's a concern...how?

If a "monopoly" leads to much lower pricing, where --- exactly --- is the harm?

What is the outcome of switching to a publisher set pricing model for Amazons competitors?
"Presumably this will make players like BN.com, Kobo, and others very happy because, with publisher-set pricing, they no longer have to lose money on every sale to compete with Amazon."


You post this as if it were a positive.

As pointed out, they don't have any costs associated with manufacturing the book or distributing them. Why the fuck should I pay $26 for a damned ebook?

A price where a bookseller doesn't have to lose money to compete with an Amazon on pricing?

Again, not my problem. Let those booksellers figure out a business model that works.

And Apple has in its plan that if its competitor does sell a book at a lower price, Apple can charge the same price so as to remain competitive. Which would mean that the consumer could still pay that lower price at Apple.

Why does APPLE get to the set the price?

If Amazon is willing to take a loss, then LET THEM.

Because that model favors Amazon over all other booksellers who can't compete with Amazon since to buy the book from a publisher to sell means they lose money on that sale.

Again, how is that anybody's problem but those sellers?

Collusion to protect inefficient businesses is not good.

Then why would publishers want to change the model?

To demand higher prices in the future and inflate a market.

Which, as a consumer, is hardly in my interests.

Apple didn't want to get into business to sell books at a loss.

Goodie for them. It takes an impressive level of chutzpah to bemoan poor old Apple. That underfunded company that has to barely scrape by, apparently.

Publishers didn't like Amazon cannibalizing their product by selling it below cost.

They could've always raised wholesale prices. They do control that pricing.

BUT...that might upset others.

And Amazon's competitors didn't like the fact that they they couldn't compete with Amazon without losing money on best sellers because of Amazon artificially lowering the price on books to where noone can compete with them without losing money every time they sell a book.

Again, you're not spelling out a problem here. Fewer booksellers? Tragedy. Why would I visit a bookseller that sells for more than Amazon.

I'm a CONSUMER. It's not my concern what happens to a company.

The best option is for Amazon to eliminate publishers ENTIRELY and contract with writers directly.

damikesc said...

Amazon alos has groceries, video games, clothing, furniture and any other things they sell to offset costs.

Does Apple NOT have things to offset costs?

Last I checked, they make a bit of money on their phones.

Bob_R said...

Publishers and traditional booksellers are trying to prop up a a dead business model using every monopolistic, anti-competitive tool in the book. Pure Weekend At Bernies . Amazon is "undercutting" the publishers because publishers no longer add any value: zero, nada, zilch.

jr565 said...

Damikesc wrote:
Amazon alos has groceries, video games, clothing, furniture and any other things they sell to offset costs.

Does Apple NOT have things to offset costs?

Last I checked, they make a bit of money on their phones.

I was talking about booksellers prior to Apple getting into the market.

jr565 said...

damikecz wrote:
They already got paid when Amazon bought the books wholesale.

Their whining that a retailer made less of a profit, or even a loss, on their product is silly.

They don't have to like the model that Amazon is offering and want to sell their books a different way.

jr565 said...

How is this different than how Apple sells on iTunes?

jr565 said...

There is nothing illegal in going from a wholesale model to an agency model. Publishers are the ones who make the books. they can engage in contracts with anyone and make deals with companies that are beneficial to them.
When Apple was discussing wanting to sell ebooks at 12.99 to 14.99 it as the pricepoint discussed that would realistically sell. Jobs mentioned that Amazon was sellling books at 9.99 and that might be the winnning model. But why is 9.99 the price that books must be set at, and not considered an arfticiallly low price set by Amazon to wipe out its competitors?
This is the DOJ picking winners and losers again.

jr565 said...

Bob_R wrote:
Amazon is "undercutting" the publishers because publishers no longer add any value: zero, nada, zilch.

Except the Publishers are publishing the books that Amazon is selling. HOw is that not adding any value?
Why doesnt Amazon then just sell books not put out by publishers? All the books that Amazon had on its 9.99 list were books published by those very publishers you say have no value.

jr565 said...

The prices on Amazon’s website may seem amazingly cheap, but these savings come primarily from publishers, who are squeezed for every penny, as Amazon forces them to supply them at rates so low that it leaves authors and publishers out of pocket – particularly damaging smaller publishing houses. Amazon’s dominance of the market means that publishers have little choice but to comply with their demands. Aside from the ethical considerations, this affects readers in reduced output from small presses, and diminished availability of radical titles.

Apple offered publishers a better deal that didn't force them to operate at such a loss. So what's the deal here? Why is the only model that is viable one where Amazon gouges publishers and puts its cometitors out of business.

jr565 said...

And Amazon still can use the wholesale model for physical books. Ebooks and digital files though seem to work better with the iTunes model.

By the way, Amazon is making more money under this new model then the old model. 30% per book sold.

But why was the 9.99 price considered by the DOJ as the price that the book must be? MUST New York times bestsellers be set at 9.99? Why? Publishers have a suggested retail price for most items, not to mention a wholesale price. If the price is set by the publisher and its higher in certain cases than the artificially lowered price set by Amazon. So what?
If the price is too high as set by publishers they will soon learn that selling ebooks at that price is not something customers want and will lower their price, or not.
Amazon also cannot sell video game systems below a certain price. Current Apple products cannot sell below a certain price on Amazon or at any apple resellers.

What about the Non NYT books that amazon doesn't sell for 9.99?

damikesc said...

I was talking about booksellers prior to Apple getting into the market.

So they made poor choices and weren't able to compete with a newcomer.

That's, you know, what capitalism is SUPPOSED to do.

They don't have to like the model that Amazon is offering and want to sell their books a different way.

True. But collusion in price gouging is illegal. Perhaps they should've tried a different tactic.

But why is 9.99 the price that books must be set at, and not considered an arfticiallly low price set by Amazon to wipe out its competitors?

That more entities entered the market to compete, like Apple, belies your entire notion.

If Amazon sought to destroy their competitors, then Apple wouldn't have entered the market in the first place.

Except the Publishers are publishing the books that Amazon is selling. HOw is that not adding any value?

Amazon can publish the ebooks far cheaper. It'd be best for consumers if they contracted with the author and cut the publisher out completely.

The prices on Amazon’s website may seem amazingly cheap, but these savings come primarily from publishers, who are squeezed for every penny, as Amazon forces them to supply them at rates so low that it leaves authors and publishers out of pocket – particularly damaging smaller publishing houses.

Inefficient companies often complain. US car makers hated that Japanese cars were cheaper yet of a higher quality than theirs.

You can either up your game or try to game it so competition can't take you down.

The latter doesn't work out well for consumers.

Amazon’s dominance of the market means that publishers have little choice but to comply with their demands. Aside from the ethical considerations, this affects readers in reduced output from small presses, and diminished availability of radical titles.

Can you demonstrate that this is the case?

Publishers can opt to ignore Amazon. What rights do I, as a consumer, have when collusion is committed against me?

Apple offered publishers a better deal that didn't force them to operate at such a loss.

...in a move to kill their competitor. Tres noble.

Crunchy Frog said...

Publishers are the ones who make the books.

Uh, no. Authors are the ones who make the books. Publishers don't do jack shit anymore. Back when the printing press was the only means of distribution, the capital costs involved made their gatekeeper function useful. Now they have no excuse.

jr565 said...

Except publish the books. Look at any book on the NYT bestseller and you'll see a publisher. So sorry, they are still in the game.

jr565 said...

In the case of writers becoming their own publisher, which model works better for them? The model where they set their price and pay someone 30% to host their books (meaming they keep 70% of the profit) or one where an Amazon tells them if they want to sell their book they have to sell it at such a discount that they can't make ends meet all to make Amazon richer?

jr565 said...

Amazon gouged publishers by taking a 70% discount in order to be able to sell on Amazon. Apple lets publishers keep 70% of their profit.
Charlie Stross discusses the Amazon model versus the Apple model and shows how Amazon is trying to be both the wholesaler and retailer at the expense of the publisher and the author.
And that Apples, model, the one that most publishers want keep Amazon as the fixed license distributor. They get their cut as do the publshers as do the authors> But they dont control the whole supply chain like Amazon wants to do.


From Charlie Stross:
"(Note that Amazon have been trying to grab a larger share of the cake by dipping into the publishers -- and the authors -- share of what meagre profits there are (book publishing is notoriously, uniquely unprofitable, within the media world), even though they've already got the wholesale and retail supply chains stitched up. Their buy wholesale/sell retail model screws publishers' ability to manage their cash flow and tends to induce price wars on the supply side, which is okay if we're talking widgets with a range of competing suppliers, but books are individually unique products and the industry already runs on alarmingly narrow margins: this isn't the music or movie biz.:"


and that the model proposed by Apple is actually better for lowering prices:

"Pricing ... we sell books by reverse auction, most expensive editions first, then cheaper editions, then mass market, until we get to the remainder shelves. What any sane publisher would like to do is to get away from the current crude fixed-price points -- a system they can't do anything about right now because it's locked in via the wholesale/retail distribution model -- and get round to flexible pricing on books: start selling high, then drop the price incrementally with much higher granularity than is currently possible. Such a system would allow them to get a lock on the price elasticity of demand, and thus work out the price point at which they can maximize book sales. A fixed-percentage agency model (distributor takes a flat 30 or 35%, whatever the price, while the price is set by the publisher) lets them do that."

He also makes the point that the small publisher and self publisher would be even more screwed by Amazons model:

"Final note: to customers, Amazon would like to be a monopoly (i.e. the only store in town). To suppliers, Amazon would like to be a monopsony (i.e. the only customer in town). Their goal is to profit via arbitrage, and if they can achieve those twin goals they will own everyubody's nuts -- the authors, the customers, everyone. They are, in fact, exactly the kind of middle-man operation that the internet tends to squish, gooily. And if you think things would be different if I, Charlie Stross, went into self-publishing and sold my wares directly without any icky publisher to 'help' me ... do you really think I'd get better terms out of Amazon than a huge publishing conglomerate?

So fuck Amazon. THey are the villain here. not the publishers and not Apple.

jr565 said...

Sorry, heres the link to Charlie Stross's post:

http://www.antipope.org/charlie/blog-static/2010/01/amazon-macmillan-an-outsiders.html

Rusty said...

jr565 said..

Once again.
It will be the consumer who determine which business model is best.
No amount of screaming is going to change that.

damikesc said...

Who made ebooks cheaper?

Amazon?

Then they ain't the bad guys.

It's not my job to care if publishers or other retailers cannot compete.

ndspinelli said...

Taken for Granted, a psychological thriller written by Leslyn Spinelli[my bride] is now available on Amazon through the Althouse portal for only $3.99. It's set in Madison and I think you'll like it, particularly women.

Steven said...

"Little did Apple know"? If Apple didn't know that colluding with all major producers in an industry, in an effort that Steve Jobs explicitly said would raise retail prices for consumers, would get it in trouble for price-fixing, its legal staff were all idiots. This was a textbook example of illegal price-fixing under the Sherman Act.

And no, you can't legally engage in price-fixing to try to defeat what you think is predatory pricing. If Amazon's engaged in an illegal effort to monopolize, you file an antitrust lawsuit. You're not allowed to engage in price-fixing to raise Amazon's retail prices any more than you're allowed to firebomb Amazon warehouses to raise their costs.

Steven said...

(And yes, there's a moral difference between price-fixing and firebombing. But whatever my libertarian views of what antitrust law should be are, the law is what it is. Apple blatantly, flagrantly, and knowingly engaged in illegal price-fixing.)

Methadras said...

jr565 said...

And Apple stated that if any company (Amazon) sold the book for less, Apple can sell the book for that same price.


That sounds like competition. I don't like the idea of companies colluding to set prices, but I still don't see how Amazon is caught in that web if it undercuts them all and sells below their collusion price. They are competing, so who is losing? The publishers and that's because they decided to game the market to begin with. All Amazon did was tell them to take a flying fuck and oh watch us undercut your prices by this much, compete or die. It's the publishers if anything that should be getting punished by the market for having inflated prices to begin with. They know they are dying to independent publishing and so they go crying to DOJ for reprisals. This is not how the market is supposed to work and the more government mucks it up the worse it becomes.

Methadras said...

jr565 said...

Then why would publishers want to change the model? And why would they say that Amazon was cannibalizing their product?


Because they are looking for price fixing protection basically and how is amazon buying their product if they didn't sell it to them or from someone else.?

In the case of a KOBO, I could see them not buyig certain books from companies because they know they will not be able to sell it at the price Amazon does, which means fewer potential sales, or fewer potential sellers.

Compete. Simple.

Methadras said...

ndspinelli said...

Taken for Granted, a psychological thriller written by Leslyn Spinelli[my bride] is now available on Amazon through the Althouse portal for only $3.99. It's set in Madison and I think you'll like it, particularly women.


Pimpin' ain't easy. :D

Methadras said...

Let's say I have a new business model that I convince you will sell your products and we agree on a price and I sell it for that much. I bought it from you, you got your money, then I sell it and I get my money or I use that product as a sales tool for some other product that will make me larger profits. Did I commit a crime?

Now, other companies see that I am using this new model of sales, they sign on. They get their money, I do what I need to with the product. Where is the collusion? Where is the price cutting? Where is the crime?

jr565 said...

Nope. Amazaon was acting like the monopoly because it had the book market sewed up. So much so that it was acting as both the wholesaler and retailers and screwing publishers because they were the only game in town.
Apples system allows for price flexibility (including the ability to lower prices) and is fairer to the publsiehrs AND the distributors. And Amazon even makes more money under that system. Why is that bad for Amazon? Because Amazon wants to be the monopoly and was counting on a loss for five or so years while it established its monopoly in the ebook market.
The publishers want to sell books dynamically at a range based on its market value. CEO of Macmillan says “Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99.” So, in many cases that would be sales BELOW 9.99. How is that price fixing?

"So let’s take a look at a practical model, St. Martin’s (a division of Macmillan) author,Janet Evanovich’s Finger Lickin’ Fifteen, which has a list price of $27.95 (so let’s call it $28.00 for ease of math).

Macmillan sells it to Amazon for $14.00, Amazon turns around and sells it for $9.99, so essentially at a four dollar loss.

Under the agency model, the publisher sets the price for the e-book at fifteen dollars and takes 70 percent, so they make $11.50 per book, which is less than they were making before and Amazon makes $4.50 per title, which is more.

So what’s the problem and why is Amazon throwing a hissy? Because they don’t care if they make a profit on e-books. As was explained to me by a NY Times Bestselling author, she said that Bezos knew he was taking (roughly) a five dollar loss on each e-book sold and had plans to do so for at least five years, in an attempt to establish a monopoly in the digital book market, trying to outprice his competitors. And he would have, too, if it hadn’t been for those meddling kidsSteve Jobs and Apple."



jr565 said...


Oh, and about that whole threat that Macmillan levied about delaying e-book releases for several months, it's already happening. It started with authors who had the power to do so having clauses inserted in their contracts that would delay the release of the digital copies of their books for up to six months following the release of the hardcovers, which has to do with Wal-Mart.

See, Wal-Mart, with their policy of matching competitors' lowest prices, didn't want to sell brand new hardback releases at a $9.99 price point. So they would often opt not to stock a title at all. Which hurts an author's numbers like damn and whoa since they're currently the single largest book retailer.

And while this is likely to continue changing, an author's Amazon sales (including Kindle sales) really don't amount to that much-- average that I've heard from my friends is less than 5% of total sales.

In terms of numbers, where do you think the publisher is going to concentrate their efforts?

See how that works? Because Amazon is undercutting the market Walmart is not stocking the big titles because they don't want to or cant' match that price. All part of Bezos's plan to become the monopoly and only game in town.
Why should publishers go along with the model where selling to Amazon means that other stores wont sell their books?
Price fixing was going on, but it was going on by Amazon and all to enrich the budding monopoly.

jr565 said...

Amazon was acting as both a monopoly on the wholesale side and a monopsomy on the retail side at the same time at the expense of both publishers and its competitors.

"Let's just frame it as a desperate attempt by the publishers to get away from the wholesale model, which was allowing the monopsony incumbent (Amazon) to extort ridiculous discounts from their suppliers. If anything, the agency model simply means selling books the same way they were sold 30 years ago, and the way apps are sold in the iTunes app store or the Android Marketplace."


are itunes and the Android marketplace engaged in "price fixing"

Joe said...

How can Amazon sell an eBook below cost when the cost is about a tenth of a cent?

Criticism or praise of Amazon aside, Apple and publishers DID collude to fix prices. And fixed them at an insanely high price relative to cost.

Steven said...

If Amazon was monopolizing, the legal recourse was to file anti-trust actions against Amazon, which Apple or any other private entity could have done if it liked. Instead, Apple engaged in collusion with Amazon's suppliers to force Amazon to raise prices on average, which is vertical price-fixing, and blatantly illegal.

It's illegal even if it's the way books used to be sold, and it's illegal even if it's the way other digital markets work, and it's illegal even if Amazon was sending stormtroopers to One Infinite Loop to gun down Apple employees in the parking lot.

Rusty said...


Nope. Amazaon was acting like the monopoly because it had the book market sewed up.

No it doesn't. They are not preventing any one else from competing with them.

Rusty said...

jr565.
If this arrangement isn't beneficial to the publishers, why are they selling to Amazon?

stlcdr said...

Really, not seeing the 'price' issue here. For a consumer, is $9.99 too much or too little for a book?

Do consumers care about publishers? The 'publisher' really only indicates today a genre of book, and the potential style of that book (typically related to non-fiction) and serves little purpose beyond that. This is examining it from the e-book perspective, and not physical book production.

But, are publishers also marketeers? Isn't alluding to collusion a marketeering tactic?

And these days, e-books are all about volume: volume can only come, with maximum profit, at a certain price point (all else being equal). If multiple companies have the same specific price for a given product, it doesn't necessarily indicate collusion, or price fixing.

The irony is that this book is $1.99. But then, perhaps I know nothing beyond the fact that I know what I will, and won't, pay for an electronic book. All the price fixing in the world doesn't change that number, they just have to convince me that I really, really need to spend my money on that particular non-essential chunk of bytes.

damikesc said...

Given that Wal-Mart doesn't match online prices as is, I question if the author know what he or she is talking about.

jr565 said...

Rusty wrote:
r565.
If this arrangement isn't beneficial to the publishers, why are they selling to Amazon?

Because Amazon was the only game in town. At one point they owned 85% of the ebook market.
Now, though, Apple is offering them a better deal. And the deal actually will give Amazon and all sellers more money. It's just that Amazon wanted to be the monopoly on book selling and was willing to take the loss for a few years to both build their Kindle market and to wipe out their competitors.
Sorry for Amazon that this didn't happen. But thats good business for the publishing world. And it might be better for prices too. For bestsellers you might pay more, but for older books you might pay less.

Also, once Amazon did corner the market, do you think that prices would remain low?

jr565 said...

Rusty wrote:
No it doesn't. They are not preventing any one else from competing with them.

They controlled 85% of the market already. And they had their other items to offset the loss of their book division. Most companies that weren't superstores couldn't do this. They also played hardball with the publishers. The publishers now have a better deal.
And note, Apples deal doesn't prevent Amazon from selling books AND making more money on books.

jr565 said...

also, this only applies to ebooks. As far as I know they still sell traditional books the same way as before.

Rusty said...

They controlled 85% of the market already.

I repeat.
Are they preventing anyone else from competing with them?

jr565 said...

Interesting article from Forbes which shows that it was actually Amazon that was the near monopoly engaging in predatory practices
The irony of the Governments Antitrust case against Apple"


"The second irony is equally paradoxical. Before the publishers instituted higher prices through their deal with Apple, Amazon controlled 90% of the e-book market. The allure of its fast-selling Kindle e-readers and the lack of viable competitors outside of the Nook (offered by Barnes & Noble) until the Apple iPad came onto the scene led to Amazon’s market dominance. Pricing its e-books significantly below its costs contributed to its near monopoly as well.

Such pricing schemes could be considered predatory under antitrust law. Yet, the DOJ did not bring such a case against Amazon. Nor did the agency try to curb Amazon’s monopolistic power over the e-book market at the height of the company’s dominance. Instead, the agency decided to pursue the less powerful publishers."

It's simply true,regardless of what the Amazon defenders are saying, and despite liking cheap prices. Not at the expense of creating a near monopoly, though. The DOJ could have, and should have gone after Amazon over their predatory pricing not suggested that that exact predatory pricing be the norm to base a price fixing case on from publishers getting reamed by the big bad monopoly.

jr565 said...

Rusty wrote:
I repeat.
Are they preventing anyone else from competing with them?

It was actually closer to 90% of ebook sales. What competion are you talking about?
It would take a company the size of Apple to even compete becasue they can lose money in books and still be profitable. Most bookstores cannot compete on that level with Walmart.
When you control 90% of the market, it's kind of hard to say that there is a lot of competition. Even if they aren't prevented from doing so, the fact that they aren't should be suggestive.

Until Apple came along and gave publishers a more fair deal, which doesn't involve them destroying themselves to feed the big bad near monopoly, they were nearly a monopoly. And this fair deal also gives Amazon more money on ebooks. It just doesn't leave them in the position of being the only game in town, and publishers don't have to destroy themselves just to feed the beast.

And what also isn't mentioned is that Amazon has DRM on its content. So they were trying to lock in customers for their own proprietary format that could only be used on their Kindles. And using the artificially low prices to push their technology. Since they had the lower price, and you could only read their book on the Kindle you had to buy the Kindle.
Now the ipad came along and blew them out of the water.

Frankly, I'm surprised they're still going with their DRM scheme, but Apples way allows you to have files that you can play on any reader. So again, why are you defending Amazon at this point?

The only argument that might hold some sway is that prices have gone up. But who said that books had to be 9.99? And I can goo on iBooks and find plenty of books that are less than that price. So, maintaining the old model that only helps Amazon while killing the publishing industry doesn't even really impact on prices.

jr565 said...
This comment has been removed by the author.
jr565 said...

Finally, why isn't amazon price fixing when setting the price for books at 9.99? Since they controlled 90% of the e-book market, the price of best sellers was essentially set by them To be that price
Is the issue that the publishers want to set the price? Then you really think that the model used is inherently illegal. Tell that to apple and Android in their online stores that don't involve books.
To buy a new movie on iTunes its 15.99 or whatever is set by the publisher. And apple gets a 30% cut. Is that similarly illegal?
Also, what about other goods sold on amazon. If you buy a video game system, like an Xbox 360 amazon must sell it at a certain price. You can find video games that sell at a discount, and some of the amazon associates might sell a used copy for less, but they can't sell it at a loss. Meaning, the manufacturer sets the price and if amazon wants to sell it they have to sell it at a certain price.so why is it ok for video game console makers to do that, but not book publishers?

Rusty said...

Enough of this nonsense!
I'm going to go get some free Kindle e-books.

damikesc said...

Jr, you are way off. About two years ago, EA released Need For Speed Hot Pursuit. Several retailers had it on a deep discount early...much to EA's chagrin.

But they couldn't do a thing about it.