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Apple, publishers, and the reality of eBook price-fixing

At the end of last week, over in the US a judge approved the settlement of a suit that blamed Apple and several New York publishing houses for plotting to fix the price of eBooks in attempt to take down Amazon's aggressive pricing.

The entire scam was based on something called the agency model. The idea behind it is that publishers set a fixed price for a book, and anyone reselling the books cannot be a retailer but an "agent" of the publisher, forced to abide by set pricing rules.

Exactly how Apple and the publishers employing this scheme did not see it as price-fixing is beyond me. Anyway, back in April they got sued by the Department of Justice and now that idea is toast.

Perhaps one of these days a publisher or someone from Apple can explain to me exactly why some sort of onerous software license wasn't attempted in place of this scheme. I think they could have easily fixed prices legally in this manner, with some sort of creative licensing arrangement.

But I'm glad they didn't.

Why did the offenders feel that such drastic measures had to be taken? Well, the price points for eBooks in the States float around 99 cents, $1.99, $2.99, $4.99, $7.99, and $9.99 (between 62 pence and £6.25 our money).

Do you notice anything interesting about these prices, besides the .99? For starters, there is nothing over ten bucks. The New York publishers were considering $11.99 to $14.99 (£7.50 to £9.37) as minimum prices for their eBooks. Apparently with the best-selling authors, they need to get 15 per cent of a cover price that amounts to perhaps as much as $4 (£2.50) a book. Publishers cannot deliver that kind of number on an eBook unless it is priced over the ten dollar mark. It sure cannot be done at $2.99 and it is a break-even proposition at $9.99, which is's magic number for best-selling eBooks.

Thus the price-fixing scheme is born.

What can we do about it? Well, I hate to be simplistic about all this but you can't do anything. Times have changed and with every new technological improvement which touches our lives, an industry has to evolve its business model. Let me assure you that digital distribution has affected the magazine business a lot too.

You must understand the fact that the book publishing business was still operating in 1980 much like it operated in 1880. Its concept of modernising was using a new font.

Everyone knew that the eBook was coming in one form or another, but the entire money-making model was based on formulas rooted in hardcover book sales. The eBook thing was alien because the production and distribution costs are almost negligible.

No model could have taken that into account in any reasonable way. All the publishers saw was the fact that they did not have to pay for paper, ink, printing, binding, and packaging. It was all free. Now they could make some serious money!

I do not know how anyone can value an eBook at more than ten bucks for the simple reason that manufacturing costs have been zeroed out. Essentially, you only pay for the content, meaning the money should flow to the writer, the illustrators, the editors, and the guy who ran the software to produce the .mobi file.

This shift to creators being the major cost blows publishers' minds. The clueless publishers are like gold miners who have struck platinum. No one knows what to do.