Publishers' crazy e-book prices

Having taken control of pricing from Amazon, publishers are foolishly pushing down demand

Published October 6, 2010 6:35PM (EDT)

When America's book publishers wrested control of e-book prices from Amazon earlier this year, I expected two results. First, prices would go up. Second, I'd buy fewer new Kindle books. I got that part right.

What I didn't expect, however, was that publishers would be so incredibly foolish as to start raising e-book prices to the point that they were close to, and in a few cases above, the hardcover prices. Here's a non-literary term for this policy: nuts.

I've been keeping loose track of this trend for months, and had noticed that some hardcover books were getting close to the Kindle prices. Then the barrier fell, as the New York Times reported this week, when at least two books actually were more costly to read on Kindle devices than the actual physical book.

How did this happen? It's a classic Traditional Media vs. the Digital Age story. The key players are Amazon, the major book publishers and Apple.

Like other booksellers, Amazon buys physical books from publishers at a wholesale price, typically half the suggested retail price. And, like some other booksellers, Amazon sells the books to customers, usually at a small markup. There's nothing stopping booksellers from selling below their costs, as "loss-leaders," if they choose.

That's not how it works with most e-books, at least not since most publishers went to war with Amazon last year. Amazon had been pricing many new bestsellers at $9.99 (I'll refer to this henceforth as $10), below what it was paying the publishers. Amazon's clear aims have been A) to get customers used to the idea that new books should cost $10 and not much more; and B) to become the unstoppable leader in book sales.

To the extent that Amazon has been trying to corner the market, I'm with critics (despite being a small Amazon shareholder) who don't want that to happen; competition is more important than ever, especially when it comes to digital media, where it's all too easy for monopolies to develop. But to the extent that Amazon wants to bring prices down to a level that bears some rational relationship to the fact that e-books cost much less to produce, I'm all for that.

After a bitter battle that saw Amazon behave with incredible arrogance -- and with the help of Apple, which bought into the idea of higher prices for its iPad bookstore -- the publishers wrested control of e-book pricing away from Amazon entirely. They went from a wholesale model to what's called an "agency model" where they, not the bookseller, determine what readers will pay. (I'm wondering when the publishers will insist on an agency model for physical book sales.)

The agency model caused prices to soar on Amazon, with 50 percent hikes ($15 instead of $10) becoming all too common. Some vocal Amazon customers have been screaming from the rooftops about the new prices. Others, like me, said the hell with it and just stopped buying as many new books.

Now, sellers have every right to charge more for popular books, especially when they're new. This is basic supply and demand. But the new pricing is also related to the publishing industry's belief that it can charge higher prices for inferior products.

The kinds of books I download for my Kindle (more accurately, my Kindle reader on my Android phone) fall generally under the casual entertainment category. I buy a Kindle book the way I buy a movie ticket — for books, like most movies, that I'll read or watch once and forget about. A physical book is more like a DVD -- something I want to own and enjoy again and again.

So my Kindle purchases are like the books I used to buy in airport newsstands, such as mysteries, thrillers and semi-trashy novels that I'd sometimes leave in hotels or airplane seat-back pockets once I'd finished them. And once I got accustomed to reading e-books, I started doing something that had been out of character in the analog era: buying new books that, in print, were available in hardcover only. Why? The $10 price felt right. In fact, my new-book purchases soared.

What are the benefits of buying an e-book? The main one is portability. It's genuinely great to be able to have all the reading material I could possibly want with me wherever I go.

But there are major drawbacks to e-books, at least the way Amazon and Apple sell them. They don't really sell e-books; they merely let me read them, and in the process remove my rights to do what I want with what I've purchased. Amazon's digital rights management system is, like that of the DRM employed by the entertainment industry for movies and music (thankfully disappearing with the latter), a system for restricting customer rights, and it's bad news in every way.

The ability to give away or sell a used book is called the “First Sale Doctrine” in copyright law. But by sending me a digital file and tethering that file to a specific device, Amazon and the publishers have removed my right to transfer it, and thereby destroyed a portion of the book's value. By all rights they should offer me a better price, considerably better, than the hardcover (or, for that matter, softcover) edition. Is a few hours' worth of portability worth everything else I lose?

The Amazon price for many new hardcovers is now typically just a couple of dollars higher than the Kindle price. (Remember, Amazon sets the hardcover price but the publishers set the e-book price.) This means I could buy the hardcover, read it and donate it to my local library, and -- after the tax deduction -- come out ahead. I'd do even better taking the book to my local used-book store and getting cash.

For some readers those few hours of portability do seem to be worth it. Not for me: I've basically stopped "buying" new Kindle books, at least ones priced above $10 except in the rarest of circumstances, which is exactly once so far. (I needed a book for research and was far from the nearest bookstore, which didn't have it in any event, and I felt I couldn't wait several days for a delivery from Amazon.)

I do more reading than ever, thanks to e-books. I'm still buying new bestsellers when they're $10. But there are tens of thousands of older books, many of which are free, that I can enjoy, too. And I'm perfectly content to wait again for cheap paperback versions of bestsellers, which I tend to buy in used bookstores that don't send a dime to the publishers.

The publishing industry has pretty much gotten its way. I don't see a big victory there for anyone.

By Dan Gillmor

A longtime participant in the tech and media worlds, Dan Gillmor is director of the Knight Center for Digital Media Entrepreneurship at Arizona State University's Walter Cronkite School of Journalism & Mass Communication. Follow Dan on Twitter: @dangillmor. More about Dan here.

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