Apple + Agency Pubs Colluded on Price?

[elcreative]

Originally Posted by JD Gumby

No big loss as the small local shops and independant book stores generally have worse selection, worse quality, and worse prices.

Opinion not fact... and some choice is better than none at all... remember that not everybody has computer/broadband access, cars and mobility to travel many miles to out-of-town shopping centres and convenience can over ride the cheapest , non-existent option. Still as a method of continuing the migration into cities, it helps to have large corporations dominating all retail functions...

[elcreative]

Originally Posted by MovieBird

You've got it backwards, it's generally the affluent that shop at the local farmers market for organic produce, or that really neat independent book store downtown, because they have the disposable income to pay more to assuage their guilt.

It's the unwashed masses that shop at Walmart out of necessity.

What's a "Walmart?"

[stonetools]

FW had a strong feature in a potential war against amazon: Format flexibility. The non-DRM'd ebooks are offered in several formats--they can say, "you can use multiformat books on your next device as well." But removing all the agency books gutted the catalog too much for that to be a compelling point for the majority of customers.

So business conditions changed , and a store's existing business model no longer guarantees success. Surely that has never happened.. Oh yeah, Borders!
Of course, different formats and no DRM are popular selling points -on Mobile Read. I hate to always be pointing this out , but the average consumer doesn't care about any of this,which is why FW is suffering now.

Y'know, the people who pay them? The ones who are keeping them in business? The ones who don't know DRM exists until they "upgrade" their K2 to a Nook Color and discover none of their "ebooks" can be read on their new "ebook reader" and want to know why.

Where's the evidence that the average consumer is being driven away by agency pricing and DRM. Oh yeah, there is none. In fact, many more of those DRMED, agency priced ebooks are being sold today than in the good old days of no agency pricing and no DRM. Why is that, I wonder?

There's public evidence of them saying "ebook prices are too low! We cannot allow $10 ebooks to continue!" I'm less sure about the "we must band together" part in public--but they certainly managed to all switch over at the same time.

Well you got to have that "band together" part to prove your collusion case in court. We'll see what they turn up, but color me skeptical that they'll find that.

[carld]

Originally Posted by stonetools

Where's the evidence that the average consumer is being driven away by agency pricing and DRM. Oh yeah, there is none. In fact, many more of those DRMED, agency priced ebooks are being sold today than in the good old days of no agency pricing and no DRM. Why is that, I wonder?

Because the ebook market is still growing rapidly. Once the industry matures negatives like agency pricing will become much more important. We aren't anywhere close to that yet.

[kjk]

Originally Posted by carld

Because the ebook market is still growing rapidly. Once the industry matures negatives like agency pricing will become much more important. We aren't anywhere close to that yet.

But Agency Pricing could also have derailed the eBook Market growth before it really got going. In fact, that was predicted by many when it first was announced over a year ago, when everyone except Random House made the switch.

[stonetools]

Originally Posted by carld

Because the ebook market is still growing rapidly. Once the industry matures negatives like agency pricing will become much more important. We aren't anywhere close to that yet.

The problem here is not really agency pricing: it is that the publishers want to price ebooks so as to protect the price of hardcover bestsellers. This makes perfect business sense from the POV of a company that makes 90 per cent of its profits from pbooks, and most of that 90 per cent from HC bestseller sales. This wont change until the profits from ebook sales cross the 50 per cent mark. Only then will you see favorable ebook pricing from major publishers.
This is obviously not a recipe for happiness for ebook consumers. Unfortunately this will be state of the ebook universe for some time yet.

[stonetools]

Originally Posted by kjk

But Agency Pricing could also have derailed the eBook Market growth before it really got going. In fact, that was predicted by many when it first was announced over a year ago, when everyone except Random House made the switch.

Well, it could have-but it didn't. The publishers were correct that consumers were willing to pay higher prices for ebooks, and that Amazon was under-pricing the major bestsellers, for its own purposes. (Of course, most MR folks reject that conclusion, but the proof of the pudding is the rapid rise of ebook sales).

[Sil_liS]

Originally Posted by Sao

This post, by former literary agent Nathan Bransford, actually explains the whys of the agency model and the economics behind it. As he states,

In the short term, I can see people saying, "Who cares that Amazon loses money as long as I get to pay less!" The question, however, is what will happen in the future if one company gains the bulk of all ebook sales. Will Amazon be content to keep losing money forever? I doubt that.

Actually the split wasn't 50-50, but more like 60-40 in favor of Amazon.
Publisher: $9.96 (roughly 40% of $24.99 hardcover retail price)
Amazon: + $0.03 (selling at $9.99)

Yes, it isn't much, but it isn't a loss. And it's obvious that the author isn't exactly truthful when he said "They raise prices to somewhere between $10.99 and $14.99 for new e-books". Since they were selling them at $24.99 before, you don't really call that raising the price.

[Sil_liS]

As proof of the conspiracy, in the class action complaint they gave:

69. The fact that Apple brokered the simultaneous switch to the Agency model, and the Publisher Defendants agreed to standardize higher eBook prices, is amply demonstrated by a January 2010 interview in which Apple CEO Steve Jobs told Walt Mossberg of the Wall Street Journal that Amazon’s $9.99 pricing for eBooks was about to end:
Mossberg: Why should [a consumer] buy a book for $14.99 on your device when she can buy one for $9.99 from Amazon or Barnes & Noble?
Jobs: That won’t be the case.
Mossberg: You won’t be $14.99 or they won’t be $9.99?
Jobs: The prices will be the same . . . Publishers are actually withholding their books from Amazon because they’re not happy. (Emphasis added.)
70. Absent Apple’s knowledge of and participation in the unlawful conspiracy, Steve Jobs would not have been able to predict future eBook pricing with such startling accuracy.
71. The Publisher Defendants and Apple could not have switched to the Agency model without a coordinated effort because eBooks are substitutes for each other. For example, if a consumer saw that a title listed through Apple’s iBookstore was $14.99, and was also available at $9.99 if purchased through Amazon’s Kindle App, the consumer could simply just load the least expensive version of the eBook title onto his eReader device. Moreover, if one publisher’s eBook title was priced at $14.99, versus a comparative title available through Amazon at $9.99, there is a risk that the consumer would forego the more expensive title and choose to purchase the less expensive, differently titled eBook. Thus, no single major publisher would risk such loss of sales and insist on the Agency model by itself. Thus, as a matter of economics, the Agency model works only if there is an agreement by a significant number of publishers to the new pricing model. Moreover, the shift to the Agency model occurred simultaneously and almost overnight – under any definition this shift constitutes a radical, structural change to a business model that has been in existence for decades.

[MrsJoseph]

Originally Posted by Sil_liS

As proof of the conspiracy, in the class action complaint they gave:

Interesting. What do you think of point 71?

[Sil_liS]

Originally Posted by MrsJoseph

Interesting. What do you think of point 71?

It makes sense to me. If just one publisher would have decided on the Agency model, it wouldn't have worked. Amazon would have held the upper hand in a negotiation and relied on the fact that there are other publishers. But if all of the big publishers came at the same time and said: this or nothing, than it's a different deal. And it's price fixing, because all the book prices from all of the big 5/6 are in the same range.

[emellaich]

I have a Kindle with special offers and one of the first offersmImtook advantage of was a ten dollar coupon for five dollars. This let me buy 'agency' books at half price.

However, Amazon's latest ten for five deal is not valid for ebooks. I wonder if they got "spanked" by the publishers for the original discount.

[MrsJoseph]

Originally Posted by emellaich

I have a Kindle with special offers and one of the first offersmImtook advantage of was a ten dollar coupon for five dollars. This let me buy 'agency' books at half price.

However, Amazon's latest ten for five deal is not valid for ebooks. I wonder if they got "spanked" by the publishers for the original discount.

More than likely. The Agency6 deal is not supposed to allow any discounting on Agency6 books. No coupons, coupon codes, etc. Only gift cards, IIRC.

[emellaich]

Originally Posted by Sil_liS

Actually the split wasn't 50-50, but more like 60-40 in favor of Amazon.
Publisher: $9.96 (roughly 40% of $24.99 hardcover retail price)
Amazon: + $0.03 (selling at $9.99)

Yes, it isn't much, but it isn't a loss. And it's obvious that the author isn't exactly truthful when he said "They raise prices to somewhere between $10.99 and $14.99 for new e-books". Since they were selling them at $24.99 before, you don't really call that raising the price.

It is interesting to speculate on what Amazon perceived as the business model.

In a bricks and mortar world, retail margins are very small. Retailers try to buy on credit from the manufacturer and turn over (sell) their stock quickly, so they can collect cash (and even invest it for a few days) before they have to pay for the product. They make extra money on stuff like marketing fees from manufacturers who want good shelf position.

For ebooks there is no stock and, I assume, no obligation to pay until the book is sold. Assuming payment is not due the instant of sale (ten days later?) then Amazon would have ten days of free money to collect interest on. Furthermore, selling the book is automated so there are minimal transaction costs. Finally, I could see Amazon asking the publishers for promotional dollars as Amazon began to control an increasingly large portion of the access to consumers. The only real costs I see are for customer service / returns, credit card fees, and servers/Internet.

I'm not arguing that ebooks are free to create. However, since there is no physical good for Amazon to stock they don't see any of those costs. In effect, an income of three cents on very low costs could be a huge margin as a percent.

[TimW]

"Consumer rights and antitrust law firm Finkelstein Thompson has filed a class action complaint in a U.S. District Court for the Southern District of New York, against Apple and the “big six” book publishers alleging a conspiracy to fix eBook prices. This is the second class action complaint to hit these companies this month."

Edit: Random House is included in this lawsuit, unlike the lawsuit in CA.