More raids in price-fixing probe. Publishers “explain” high ebook pricing

The title should read, “…try to explain” the fixed higher-pricing of e-books.  See earlier article here on the raids.

The Guardian has a piece today on the raids, which includes quotes from some publishers trying to explain or defend the fixing of pricing so that prices are generally much higher and must be the same at all online bookstores needing Agreements with the Big 5, with no way for the online stores to offer sales or lower prices no matter what the case.  Random House has decided not to join Agency pricing in Europe during this time of probing questions.

Benedicte Page and Leigh Phillips report from Brussels, where they say that officials there have “refused to say how many or which publishers were targeted although a spokesman for Hachette, famed for its dictionaries, confirmed that it was among them.  The inquiry is understood to be focused on French companies.”

Excerpts of particular interest, emphases and bracketed comments, mine:

‘ The EU competition spokeswoman, Amelia Torres, said: “We have suspicions of collusion to keep prices high.  But if our suspicions prove to be founded, this would have an impact across the EU because ebooks are sold across borders.”  She added that the firms involved face fines if the commission finds “hard evidence”.

The development comes on the heels of an investigation in January by the UK’s Office of Fair Trading into whether arrangements between certain publishers and retailers over the sale of ebooks “may breach competition law”.

Investigation teams have asked many of the biggest London publishing houses, including HarperCollins, Hachette and Penguin, for all records and documents relating to ebook sales.
. . .
Publishers see the agency model as crucial because it allows them to trade with Apple [which created the Agency plan and insists on it], which was already using it for iTunes, and also to control the price at which their ebooks are sold.
. . .
Ronald Blunden, Hachette‘s head of communications, denied that the company engaged in price fixing. “Emphatically no,” he said. “We are dealing with distributors [such as Amazon] who have considerable clout.

“We found that in the US, electronic retailers began to apply large discounts on ebooks, driving the cost down.  Steadily the spread between the price of a printed book and an ebook became so substantial that we felt it was just unacceptable.”

“It’s important for the publisher to control the retail price,” Blunden continued. “We don’t want the items sold below cost, as the perceived value of books becomes damaged.  Once this happens, can we expect online retailers to absorb the cost of financing the editing and publishing of books?”

John Makinson, the Penguin group chief executive, argued that the “very important” agency model contributes to a competitive ebooks marketplace.  “To have vibrant competitive markets, it’s important that Apple and the other digital vendors have a place in that market.  The agency model made it possible to have that choice,” he said.

Makinson added that he saw “a certain irony” in an OFT [Office of Fair Traiding – UK] investigation designed to ensure competition and consumer choice.  “That in our view is what the agency agreement has provided,” he said.

Their view of ‘competition’ is that the online booksellers must not be allowed to offer lower prices, which means online bookstore “Sales” are no longer possible and the customer cannot look for a lower price elsewhere as it would be fruitless.  Some consider this ‘price fixing’ while others consider it necessary publisher-control of book pricing, no matter how artificial or without reason.]

Novelist Nick Harkaway, author of The Gone-Away World, agreed. “If the agency model is really a problem under EU law, the law is the problem, not the industry,” he said. “Otherwise you fall back into a situation where Amazon controls the market.  This is not to demonise Amazon, but they are a massive portion of the physical market and if their wholesale model also dominates the digital book market, it becomes much harder to negotiate with them.” ‘

The Bookseller‘s deputy editor, Philip Jones, feels that if you let the market decide, then ebooks will become “too cheap” and they’ll be unable to pay authors, editors or all the infrastructure that sustains the industry.”

Yes, if an industry or individual companies (as we saw with digital music and with companies still limiting themselves to distributing physical copies of DVDs) cannot find a way to adjust to a vastly changing world, they won’t be able to sustain the infrastructure as it stands.  The answer is not unceasing efforts to Stop the World from moving naturally (and insisting customers just pay up, and up) but to modify their infrastructure to reflect the real world and evolving technology, no matter how upsetting it may all be for them to have to change anything.

Read more at The Guardian story.

EARLIER BLOG ARTICLES ON THE E-BOOK PRICING WARS, WITH SOURCING
A Kindle World Blog history of articles on the e-book pricing wars

Via Andrys Basten’s A Kindle World Blog

12 Comments on More raids in price-fixing probe. Publishers “explain” high ebook pricing

  1. Wow, that’s a whole bunch of the stuff that falls out of the back-end of large male bovine.

  2. That’s amazing stuff. The guy admits that the publishers are artificially maintaining high ebook prices in order to support perceived value of print books. And they all seem to be working together towards this end.

    I thought this kind of collusion was illegal. But I suppose my mind is confused and I’m remembering the hazy old days before our government was completely captured by corporate money. Since nobody at all is getting prosecuted for rampant high level mortgage fraud I guess it’s delusional to think that ebook price fixing will even blip on the Federal radar.

  3. Being sensible isn’t collusion. The fact that you can’t get a new Ford, Chevy or Honda for $49.95 isn’t because auto companies meet in secret and set prices higher. It may be that the price of new bestsellers isn’t spiraling down toward 99 cents for a similar reason. Publishers understand what it costs to create books and aren’t going to willingly self-destruct.

    Keep in mind that the market for a book in any format is limited and the market for ebooks is even smaller. Past a certain point, cutting prices will not increase sales. It is simply going to reduce income and could mean bankruptcy.

    Also, recall that people will always pay what they think something is worth. Many of those who think ebooks should be drastically cheaper than printed copies seem to have a low view of ebooks. Someone who likes reading an otherwise heavy print book on their light-weight Kindle and sharing her notes with friends doesn’t need to be persuaded by a drastically lower price. She’d be just as willing to pay the same price or perhaps the same price less the cost of printing.

    Never forget, we buy books for an enjoyable read. The ‘smell of paper’ gang excepted, the read quality of an ebook is identical to that of its paper cousin. We really shouldn’t complain if the cost of our enjoyment lessens only modestly.

  4. It’s all a bit puzzling, as the major European countries already has price fixing on paper books, as explained at http://publishingperspectives.com/2011/03/price-fixing-vs-fixed-prices-europe-ebook-quagmire/
    The wording of the actual law used in these investigations would be of interest.

  5. Felix Torres // March 5, 2011 at 7:23 am //

    Mr Perry; Everything you say is true. Or *would be* if the *only* thing that changed between print and ebooks were the final product and all production and *distribution* processes and channels remained the same for both products; if both products were marketted the same an faced tge exact same competitive landscape.
    But it isn’t.
    One more time: ebooks are *not* print books minus dead tree pulp.
    That is too facile and simplistic an analysis of the process to get the ebook from author to the reader and complete ignres the technology, economics, and marketting dynamics of digital distribution.
    We are talking two inherently different products and trying to grandfather the print book supply chain and distribution channels (to say nothing of its inefficencies) is a prescription for suicide at least and quite possibly actionable. A look at the stories filtering into the media in recent days makes it clear that sophisticated pricing tricks can deliver greater net profits to the creators than the blunt straight-jacket of Price-Fixing.
    Examples:
    http://reviews.cnet.com/8301-18438_7-20037800-82.html?tag=mncol;3n
    http://www.guardian.co.uk/technology/2011/feb/27/kindle-ebooks-amazon-stephen-leather
    The kind of price throttling that Mr Leather, in particular, uses is simply impossible under the mindset that gives us the Price-Fix scheme yet it is cearly effective and destined to become commonplace.
    If I may politely suggest, there is a hidden fallacy driving the supporters of price-fixing and it is that the market for a specific book is inherently limited and independent of its price so that shaking down consumers for all they’re worth is reasonable and logical. This is demonstrably false.
    ebook sales volume is demonstrably tied to its price so that sophisticated vendors such as Mr Leather can dynamically adjust pricing to market conditions to maintain visibility and a constant (high) net profit.
    In a competitive marketplace competitors win.
    Take-it-or-leave-it non-competitive pricing blocks off entire segments of the market, in effect marketing the product *solely* to those buyers that are not-price sensitive (a minority) and neglecting the revenue available from reaching to out to the price-conscious/wary-explorer market. And in the process it limits the books potential reach.
    The publishing industry is changing.
    It *will* change.
    No amount of protectionism is going to alter this indisputable fact.
    In the process, books as a whole are being commoditized.
    Another, painful, but unavoidable fact.
    It is delusional to think that any amount of anti-competitive product pricing can maintain the outdated model of batch-printed tree pulp premium-priced like a luxury item for much longer. Not in the face of the mainstreaming of ebooks, the mainstreaming of small/medium publishers who are willing to adapt and exploit the new era, the mainstreaming of self-publishing, and far worse for the hide-bound traditional publishers; the resurrection of orphan works and the backlist.
    Simply put, there is a glut of quality content headed our way.
    The assumption that quality reads are rare and can be priced at all the market wwill bear is a dated assumption, true in the 19th century and false today.
    Change is uncomfortable to contemplate, I know.
    Change is inevitable, though.
    And change *will* be deadly to those that seek to fight the tide.
    I have zero sympathy for the golden-parachuted idiots now running the BPHs headed straight into a collapse but I am sorely worried for the people they are dragging along with them. Those industry workers and authors are not guaranteed a soft landing and are dependent on the (non-existent) savvy of the leaders they are following.
    I would suggest that, to whatever extent they can, they stop defending the indefensible and take self-defense measures (as, again, Mr Leather is) to ensure they are not dragged down with the fools.
    The mainstreaming of ebooks is but the beginning; the commodization of books is the innevitable followup. That is one asteroid that is going to hit. The small and nimble will survive; the big and ponderous will die.
    Unlike the dinosaurs, who had no choice, the publishers of today do have a choice; they can start running or be run over. Instead, they are choosing to dig in for a rear guard fight.
    Regardless of what the bureaucrats and shysters find, the final word will belong to authors and consumers.

  6. Mr. Perry,

    The publishers’ argument on maintaining the value of the author’s work by keeping ebook prices high would be defensible IF the publishers followed their own advice.

    There has been a change in how ebooks are priced versus the pricing of paper books. The publishers are no longer discounting ebook prices when the paperback version is released. They are still maintaining the price compared to the hardback version.

    In other words, they have set a new “value” of the author’s work when the paperback is released but still maintain an arificial premium on the electronic version.

    Now if you can explain to me why the value of the words in an ebook is greater than in a paper back, I would consider your arguments. Especially when the publishers cost for an ebook is far less than the cost for printing a new edition (the paperback) and the delivery and stocking cost are essensially free. As to the value of the electronic version to the consumer, why doesn’t he have the right to lend, resell and or give the book to a friend . In other words I’m paying extra for something I really don’t own – only rent.

    The price for an ebook versus a paperback with the same words is obviously artificial, silly and probably legally actionable.

  7. @ Felix Torres

    Really difficult to see how publishers fit into a digital only world, does not seem space for both retailer and publisher in the distribution chain. The rise of selfpublishing seems inevitable, agency or not. Since there seems no extra value that publishers bring they will be swept away. Once the dam cracks, the water will move very quickly.

    The main retailers of the future are likely to use content as cannon fodder in retail wars – Google to sell ads, Apple hardware, and Amazon everything you can think of. For that they only need authors and could not care less about the BPHs, so no relief for publishers if they imagine to play the retailers against one another. This seems one of their present strategies.

    “Simply put, there is a glut of quality content headed our way.” Indeed, not to mention a tsunami of selfpublished work. Very likely that (fiction) authors are going to have an ever rougher time of it. The rise of $0.99 is a sign of this race to the bottom, and 99 cents is far too much to pay for many of the novels I had a look at recently. Simply writing a good story will no longer be enough. The marginal cost of content is going to fall to essentially zero, competition is going to be murderous, the long tail of dead authors will attract many. Being an author that has any kind of income is going to get more strenuous.

    Publishers will shrink and disappear. Authors will find the going ever more difficult. The book industry will start shrinking following in the path of the music industry. Readers will be overwhelmed with choice.

    This is the optimistic scenario.

  8. @Michael W. Perry “The fact that you can’t get a new Ford, Chevy or Honda for $49.95 isn’t because auto companies meet in secret and set prices higher”

    You’re right. It’s because consumers are willing to pay much, much more than $49.95 for them, so they don’t need to be priced that low to sell. But car dealers are allowed to have sales, offer incentives and negotiate prices to make their particular cars more attractive, and because they have to compete with other dealers who can do the same, it keeps car prices reasonable. Book retailers are not allowed to do any of those things, and because of it many readers think some ebook prices have become unreasonable. I am one of them.

    There is no book that I want so badly that cost is no object, and I have discovered a lot of really great reads among low-priced, indie books, so I am content to avoid price-fixed books altogether. I haven’t purchased a single one from agency publishers since that pricing took effect nearly a year ago, and haven’t missed them.

  9. Mr. Perry says: “Also, recall that people will always pay what they think something is worth. Many of those who think ebooks should be drastically cheaper than printed copies seem to have a low view of ebooks.”

    I’d love to know where you got THAT “fact”. Your opinion is obviously slanted toward the A6 without really talking to any real, breathing e-book readers. Please feel free to ask me how I value my e-books.

    Publishers don’t have to print every e-book purchased…digitize it once and they’re set for life. That book NEVER will be out of “print”. (Publishers save…where’s MY savings?) I won’t even mention the $$$$ saved with the elimination of remainders, shipping and warehousing.

    And, Mr. Perry, please explain why an e-book should have a higher value than a paperback? The up front costs of an e-book were paid for when the hardback was digitized. When a publisher releases a paperback, they are faced with new design costs, additional printing costs, additional shipping costs, additional warehousing costs and more remainders yet the publisher chooses to price that paperback well below the hardcover…BUT that same e-book is still priced at the hardcover price? How can you justify that?

    Beyond all the publisher smoke and mirrors and self serving “explanations” remains the fact that the A6 are preventing free enterprise at the e-book store level. By not allowing individual e-book stores to offer their customers an occasional reduced price or other price oriented promotion, they are, in fact, PROHIBITING those stores from making their own marketing choices.

    Amazon and B&N aside, what SMALL book business owner would want to invest in any kind of e-book program while these prohibitions exist? And maybe that’s their whole plan. In this era of ballooning e-book sales, the A6 are still stuck in the last century, hoping that if they can stall progress long enough, it will just go away.

  10. Dean Smith observes the following: “Paperback book prices went from 25 to 35 cents in the early 1960s to the $8.99 range today. If publishing had just adjusted prices for inflation, a paperback book priced at 35 cents in 1960 would sell for $2.60 today. That’s how far traditional publishers pushed prices to pay for their expensive overhead and the returns system.”
    http://www.deanwesleysmith.com/?p=3412

  11. Josie says: “… car dealers are allowed to have sales, offer incentives and negotiate prices to make their particular cars more attractive, and because they have to compete with other dealers who can do the same, it keeps car prices reasonable.”

    VERY true! Unfortunately, the big publishers are more about their own greed than they are about being reasonable.

  12. The link to the EU page:
    http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/11/126&format=HTML&aged=0&language=EN&guiLanguage=en

    To submit a comment or complaint:
    http://ec.europa.eu/competition/forms/consumer_form_en.html

    Mr Perry’s comment is hardly worth replying to in detail. Price fixing and collusion between sellers is anti competitive, anti consumer, antifree market, anti capitalist and leads, as now, to profiteering.

    Remember the airline business when prices were fixed and companies cooperated to keep them fixed. Remember Telecoms, phone calls and internet charges when the monopoly telecoms companies controlled the prices.

    Price fixing is never ever good for the customer or the market, or indeed the development of any industry.

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