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$9.99 e-books to be caught in crossfire if anti-trusters probe Amazon-Walmart-Target price war?
October 23, 2009 | 9:08 am
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By David Rothman
What’s best for book-shoppers? An uninterrupted duel-to-the-end over book prices by Amazon, Wal-Mart and Target? Or a U.S. Justice Department anti-trust probe into the giants’ use of discounted books to drive people to purchase other merchandise?
Yes, that’s what the American Booksellers Association wants—an investigation (PW). ABA worries that “predatory pricing” may destroy small bookstores, and in fact, I’d hate for them to vanish.
The E vs. P distinction
Part of ABA’s concerns: “It’s also important to note that this episode was precipitated by below-cost pricing of digital editions of new hardcover books by Amazon.com, many of those titles retailing for $9.99, and released simultaneously with the much higher-priced print editions. We believe the loss-leader pricing of digital content also bears scrutiny.”
That said, I agree with Brad Vertrees that ABA is wrong to set its sights on $9.99 e-books, among other targets. As Brad has pointed out, the low prices for e-books needn’t be predatory but can happen as a result of volume.
Volume can benefit paper books, too, of course, all good books have fixed costs, such is for editing. But volume can especially help E because production and distribution costs are lower. Let’s hope Justice can distinguish between E and P. While I know that Amazon is subsidizing those $9.95 bestsellers, it shouldn’t have to do so; rather, the publishers should be more fairly pricing their e-titles.
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Comments:
If we have to depend on the Justice Department “figuring out” e-books as any part of their decision-making process, we’re probably all in trouble.
However, I’d bet Justice would pretty much ignore e-books, as they are still such a small proportion of the market, and concentrate on the effects of printed book pricing.
Of course, I’d hate to see small bookstores vanish, as well. But the developing digital market will force significant change upon them, and if they can’t adapt, they probably will perish, and faster than the Big Book Chains will. I hope they can adapt.
I don’t know but I rather think there will be no significant action on book pricing, e- or p-. Not because of the merits of the case or lack of dame but because everything I’ve seen or heard tells me the big publishing houses are very much like the Hollywood studios; neither can survive a thorough airing of their financial dealings and book-keeping practices.
Any investigation into book pricing needs to establish that there is actual “dumping” going on. Which means the retailer’s costs and margins will have to be revealed and since the real problem the independent bookstores face is the publisher’s reliance on volume discounts to move product…
Does anybody still doubt that Amazon and Walmart have significantly lower overhead and operational costs than the independents? That the publishers afford *both* massive undisclosed discounts? That both are still making tidy profits even in the midst of the “bloody price war”?
Nothing to see here; move along, move along…
Agree with Felix, and I’d like to point out that Amazon already subsidizes its low prices *and* free shipping with, among other sources of revenue, profits it makes from sales in its third-party marketplace.
If Amazon pays a publisher $13 for an eBook and sells it for $9.99, it’s hard for me to figure out how they’ll make it up in volume.
Just a thought.
Rob Preece
Publisher
But that assumes they really do pay $13 at the end of the day.
The big publishing companies, like most content industries, use a lot of accounting tricks such as promotional fees, returned merchandise charges, etc to move money around. Get past the smoke and mirrors and the end cost probably bears no ressemblance to what they announce to the world.
It’s not all that different from the “instant rebates” retailers use to sell products for less while bulking up their reported gross sales numbers to prop up their stock value. It lets them report the list price in gross sales and hide the discount in cost-center category.
Hollywood plays those tricks in reverse; they inflate costs to offset the net they report.
Smart money says that once all the accounting tricks are in, the $13 book cost a lot less than even the nominal discounted price. And everybody “profits”.
If publishers are charging Amazon $13 or even $10 or even $5 for every ebook they distribute that has to be one of the most amazing pricing rackets in human history.
When a publisher sends Amazon an ebook it takes 1 cent of space to store. And every time Amazon sends a copy to a Kindle it costs 2 or 3 cents to transmit. Ebooks are almost pure profit.
When a hardcover bestseller is purchased from Amazon for $15 my guess would be that a couple of dollars goes to the author, maybe a buck of profit goes to the publisher and maybe a buck of profit to Amazon. The rest is eaten up in production and distribution costs.
But ebooks have essentially zero production and distribution costs. So, with honest pricing, an ebook of the same bestseller should cost $5 and everybody scores the same profit. But publishers refuse to price ebooks honestly because it would cut into their paper book sales. They are in exactly the same place that the record companies were in five years ago – vainly trying to protect an outmoded distribution system.
My guess is that, in five years, ereaders will cost fifty bucks and ebooks will cost two bucks. But the book publishers will fight the inevitable trend every miserable step of the way.
The folks running the big publishing houses don’t seem to be well versed in retail economics, do they? Considering that incremental ebook sales incurr essentially zero incremental costs they should be pricing their product to maximize *total* profits rather than pricing it to maximize per-unit profits.
But, as they say; “you can’t teach an old physicist new tricks; you have to take’em out back, shoot’em, and hire a young physicist.”
They’re just delaying the inevitable.
We’ll just have to bide our time until the dinosaurs die off.
From today’s (26 Oct) edition of the Register comes news that the Justice Dept. is in fact investigating a Sony subdivision:
“The DoJ has issued a subpoena to Sony Optiarc America (SOA), which supplies CD, DVD and Blu-ray-based products to North American customers, as it looks into possible anti-trust regulation violations. The general situation in such cases is that a group of suppliers co-operate to artificially drive up prices for a product.”
So, maybe in the real world, Justice will not look that carefully at booksellers that lower prices…maybe they will look at the publishers (especially the textbook publishers) for pushing higher prices?