The Kindle line basically started the digital reading revolution. They were neither the first nor the best when they appeared, but Kindles were the driving force behind it. Amazon got too powerful, customers likes affordable eBooks too much, and publishers freaked out to the point of getting involved in what seem to be fairly illegal activities while trying to counter all that. We’ve been over all that before. The big question now is “Why are Kindle eBook prices still so ridiculously high?”
I’m not just talking about the results of the DOJ suit against the publishers over their adoption of the Agency Model. I’m glad that’s happening, and I wish them all the luck in achieving a decisive conviction, but even those publishers who have chosen to settle already will not have had much of an effect just yet. I’m more concerned with common sense.
The most obvious side of this is the obvious dislike of the format. Publishers want physical media to be favored because it is more easily controlled. eBooks are too convenient and most especially too easily pirated, so we have to expect these publishers to try to persuade people to stick to proven methods, right? Some variation on this argument is likely to come up in any defense of the Big 6.
I’ll be honest, I’m not even going to address it at length here beyond saying that it flat out ignores the facts. Study after study demonstrates that piracy either increases or fails to affect overall spending as a trend. It’s unintuitive, so I don’t blame them for being slow to catch on, but surely somebody employed by these companies could do some research that goes beyond ominous warnings of the dangers of piracy like those thrown around by the MPAA. Maybe I’ll go into more detail on that another time.
Even assuming that was too hard to grasp, however, there is plenty of easy to understand information about adapting to a market that does away with the concept of limited supply. The most dramatic example comes from the video game industry where Valve CEO Gabe Newell explained a while back that briefly discounting media by 75% had unexpectedly resulted in sales numbers jumping by a factor of 40. I’m not saying the two industries are directly analogous, but clearly there are signs that digital distribution needs to be approached a bit differently.
There have been a few signs that publishers were tentatively trying to figure all this out. Some short-lived discounts have popped up, and last summer’s Kindle Sunshine Deals promo comes to mind as a large effort to feel out the market. It still seems like the biggest motivator for these publishers is a desire not to change.
They have a good thing going and can basically control the entire publishing landscape when they work together. The Kindle, along with its eReader competitors, is an unknown. If it were embraced, somebody else might figure out how to do things better and that would be bad.
I have no idea when this will change, but it can’t come soon enough. All that publishers have managed to accomplish with this ridiculous behavior is temporarily setting back Amazon by shooting both themselves and their customers in the foot.
Nobody really wants traditional publishing to be completely out of the picture, but lately they’re doing more harm than good. One of these days they will have to realize this and Kindle owners everywhere will breathe a sigh of relief while stocking their digital libraries.
The ongoing conversation regarding the DOJ suit against five of the Big 6 publishers and Apple has at times been even more interesting than the case itself in what it says about the publishing industry and those who have a stake in it. I won’t deny for a moment that I’m a fan of the Kindle or that I regularly enjoy many facets of Amazon’s business, so feel free to call me out for being biased, but I think that there are a few strange assumptions being made in some of the more popular Pro-Publisher arguments lately that need to be addressed.
The most popular justification of the Agency Model by far seems to be that without it Amazon would simply have too much control over prices and undermine competition since they could use books as loss-leaders to sell other products. The underlying assumption here is that there was literally no other option available to prevent Amazon from offhandedly destroying a whole industry. This ignores the process that allowed the Agency Model to be imposed on the Kindle Store in the first place, of course.
In early 2010, the publishers dictated their terms to Amazon and a brief conflict ensued. When Amazon resisted raising their prices, Macmillan pulled their titles. It worked, and Amazon caved. Publishers are not, in this case, the helpless bystanders trying to scrape by that they make themselves out to be. They have the choice to leave at any time, and allow Amazon to find their own way to fill Kindles with eBooks. This is exactly what happened recently when IPG was unwilling to agree to Amazon’s contract renewal terms.
The problem is that publishers don’t want Amazon out of the game. Amazon does exactly what they want a retailer to do. The store makes suggestions, up-sells, promotes, and opens the doors to customers anywhere. The problem wasn’t the potential for anti-competitive control; it was that publishers were unwilling to lose access to the channel. It is also why the collusion was necessary. Without that collusion, Amazon could presumably have done without any member of the Big 6 and they would have been left with only comparably inferior vendors to sell their books through.
The other really fun argument is the devaluation of eBooks. Basically that by selling Kindle Editions cheaply, Amazon is making customers expect affordable books and publishers will make less money. This is often tied to the idea that Amazon is trying to sell cheaply enough to get a monopoly, after which they will screw their customers and raise prices. Personally, I see the arguments as contradictory.
If Amazon’s whole Kindle sales model is designed to lower customer expectations in terms of pricing, publishers retail the previously mentioned option of removing their content. Unlike with paper books, there is no possibility of a secondary market. To me this is basically an assertion that the content offered by these publishers is less important to customers than the fact that they can get it on a Kindle. If that is so, then the need for publisher as gatekeeper is a thing of the past anyway.
Let’s assume that Amazon does accomplish lowering expectations, though. How would raising prices on eBooks after driving out the competition work to their advantage? We are talking about digital products, presumably now in a publisher-free world since Amazon ruined them all. In what way would self-publishing authors have trouble selling outside of the Kindle Store? And if that were an option, why would customers pay Amazon’s presumably higher prices after having been acclimated to cheap eBooks over the course of years? I’m not one to say that the free market will solve all your problems, but what incentive does Amazon have to dominate a market and immediately destroy their most profitable approach to it?
Basically, I can’t help but feel that redirecting the issue of Agency Model price fixing to make it appear as if the DOJ is out to appoint Amazon king of publishing is a sign that people know something illegal was done and are now out to justify it. The Kindle may be the best eReading platform out there, but it is far from the only one. Publishers had other options they could have gone with; they simply couldn’t see a legal way to get the higher profits they wanted without losing access to customers who love their Kindles.
According to some recent research by Pacific Crest analyst Chad Bartley, the demand for both Kindle E Ink eReaders and Kindle Fire tablets has fallen noticeably from Q4 2011 to Q1 2012. There is some fairly compelling argument to be made, however, that changing any predictions based on this would be at best premature. Regardless of the way things stood a month ago, the Kindle world is about to be turned upside down and interest can’t help but rise as a result.
This is not meant to be a criticism of Bartley’s analysis. Based on the information at hand when he was writing, his report was accurate. A combination of consumer polls about intended purchasing and inside information about Amazon’s supply chains show a marked decline in interest in Kindles from month to month. He attributes this to a maturation of the eReader market, an increasingly well covered customer base, and consumer willingness to read on a variety of things besides eReaders. All good points.
Since we now know that three of the Big 6 publishers have already settled with the US Department of Justice to avoid an ongoing legal defense of their price fixing arrangement, that is all more or less irrelevant. The beginning of the end of the Agency Model will mean a return to lower prices on popular eBooks and a far more active marketing campaign on Amazon’s part. There has literally never been a better time to buy a Kindle.
Regardless of where you stand on the state of publishing, it is undeniable that things are about to change in such a way as to allow for lower pricing. As most of the problem with adopting eReading recently has been the fact that eBooks are commonly priced higher than their paper counterparts, changing the balance of things will open up new markets for the Kindle. Customers who were previously on the fence about a purchase will now have much more appealing opportunities in front of them and Kindle ownership will be that much simpler to justify as paying for itself in savings over a short period of time for any active reader.
Will there be ongoing and constant increase in interest in the Kindle? It is probable that sales will plateau at some point. It is also probable that Amazon’s luck from the DOJ has pushed that point off into the future a bit. Estimates may be down for the moment, but they will be revised soon enough. If anybody knows how to exploit a major opportunity like this, it is Amazon.
This is a great time to have a Kindle. If you don’t have one of your own yet, it might be useful to check out the Kindle Keyboard. Still in many ways the best iteration of the product line to date, it will serve you well in any reading situation. Might as well take advantage of the situation, since the customer benefits more than anybody in all of this.
The first major change in eBook pricing to come about since the launch of the iPad is at hand. The U.S. Department of Justice has already negotiated settlements with three of the six major publishing houses implicated in a DOJ price fixing investigation only shortly after the filing of the lawsuit. Kindle owners can expect to see an almost immediate drop in many eBook prices, once the court has had a chance to approve the settlement terms. Amazon has already declared this a big win for consumers and announced plans to drop prices on affected titles.
For those who have not been keeping track, the early days of the Kindle brought significantly lower eBook prices than we are now used to. This was the result of Amazon being able to buy their stock wholesale and price things as low as they wanted from there. Publishers were rather unhappy with this arrangement since it meant that customers might well become used to seeing affordable prices on their reading material and cause paper copies of books to lose perceived value.
When Steve Jobs approached the Big 6 publishers with the idea of moving to the Agency Model, wherein publishers would set prices and retailers get a fixed percentage for each unit sold, they jumped on it. As soon as the iBooks store opened, Kindle Edition prices began to rise. There was some drama when Amazon attempted to hold out in protest and pull titles from their store, but without those publishers it is hard to operate a major bookstore.
Since then, prices have remained high and those involved in the Agency Model arrangement have come under investigation in both the US and EU. The biggest being raised by the DOJ, aside from alleged secret meetings and clandestine correspondence between heads of supposedly competing publishers in the days leading up to implementing the Agency Model, is the Most Favored Nation Clause. Apple managed to get this introduced in their agreement with every publisher.
Typically, a MFN is put in place to prevent favoritism from allowing a wholesaler to sell more cheaply to another retailer at a lower price. In this case, since publishers were setting the price, the DOJ is arguing that it was meant to “protect Apple from having to compete on price at all, while still maintaining Apple’s 30 percent margin.”
The result of all this has been artificially inflated eBook prices meant to turn customers away from things like the Kindle. That last point is more fact than opinion, as any look at publisher comments regarding the “troublesome” convenience of eBook borrowing at libraries that has gone along with Penguin dropping out of the library system altogether.
So far we know of settlements with HarperCollins, Hachette, and Simon & Schuster. These will prevent use of the Agency Model for a number of years and create various other consumer protections. Apple, Macmillan, and Penguin are all still denying wrongdoing at the moment, but it remains to be seen how well they can hold out. Even if all three remaining defendents get off somehow, Kindle pricing will be completely altered for the indefinite future. The Agency Model could only be forced on Amazon through solidarity across every major player in the publishing industry. With that gone thanks to these settlements, things can’t help but improve.
Not much is known at this time about what options are being discussed by the publishers under attack by the Justice Department. We do have good information that there are settlement options on the table and that the Agency Model pricing model currently to blame for high Kindle Edition eBook prices will be on the chopping block regardless.
Reports from unnamed informants close to the matter have indicated that there is reason to expect a settlement within the next several weeks. Neither Apple nor the publishers have responded to any requests for comment at this time. The Justice Dept declined to say anything.
Whether this is a sign of consensus among the defendants or merely that one or two are feeling the pressure and wanting to end what they see as a losing battle should not matter much in terms of the outcome. In the event of one publisher involved in the price fixing scheme reaching a settlement, the terms would undoubtedly involve release of evidence necessary for ensuring a successful prosecution of the rest.
Basically, assuming the news is true, this means that the end of the Agency Model is at hand and that the Kindle has made it through possibly the most harmful barrier to eReader adoption without so far becoming irrelevant. A return to the wholesale model, even temporarily, will mean more affordable reading material for Kindle owners. This in turn should spur sales of the eReading line. Amazon’s willingness to take a loss on bestsellers to promote their product line is what game them over 90% of the eReading market before the Agency Model was imposed and there is no reason to see this practice changing overly much if the Agency Model is destroyed.
The big question will be what comes next. Settlement or unfavorable ruling aside, publishers are not going to give up on their position that readers have no right to expect inexpensive books. It is incredibly unlikely that they will all pull out of Amazon in reaction to this, but they’re going to have to find some new way to prevent Kindle customers from being too happy with digital books.
The case at hand is all about how the defendants collaborated to impose the Agency Model on Amazon. The means to achieve this goal is in question, not the model itself. Depending on the terms of the settlement, publishers could be permitted to go back to it in time. They could also turn to something even more unpleasant for potential customers. It is hard to tell at the moment.
In the short term, the clear winners will be customers. Prices on eBooks should drop abruptly, especially in the Kindle Store, following official announcement of the deal being made. In reality, expectations may need to change with regard to how profitable a new bestseller should be per unit sold. Big 6 publishers will be forced to come to terms with this. Beyond the immediate benefits to Kindle customers there is little that can be asserted reliably about the effects of this situation. It will be interesting to see how the situation evolves. Any thoughts or predictions?
Since the rise of the Agency Model that Apple made possible for publishers in a partnership surrounding the release of the iBooks application and store for the original iPad (a partnership now awaiting trial in an anti-trust case), there has been serious talk about how Amazon has set out on a crusade to utterly destroy traditional publishing with the Kindle. This isn’t news, exactly, but it has become an important and popular topic after the recent contract dispute that the company had with the Independent Publishers Group that has resulted in the ongoing absence of IPG titles from the Kindle Store.
There can be no question that Amazon is acting like a bully in this dispute. They want a lot and are in a position to demand rather than ask or negotiate. What has risen up in response to this anti-Amazon sentiment has been shocking to say the least, however. Scattered around popular blogs, we can now see any number of authors and publishers coming out against Amazon and claiming that publishers were somehow right to have engaged in price fixing and that even if it was technically illegal they should be allowed a pass because otherwise Amazon will win.
On the one hand, it is understandable sentiment. Thanks to the Kindle, Amazon controls around 75% of the eBook market already. Without their platform, the rise of eReading as we now know it would slow to a crawl. Nobody else has the resources, or seemingly the interest in customer satisfaction, that Amazon is willing to put into keeping such a platform going.
On the other hand, this is insane. Publishers were unhappy with how poorly the old business model applies to new media and so their potentially illegal activities should be excused. It makes no sense to me, somehow.
This is made to seem like it is a one-sided arrangement. I believe that to be a mischaracterization. If publishers lacked power, they could not have compelled the adoption of the Agency Model in the first place. They were just too concerned at the time with short term profits to be willing to take a stand and risk losing Amazon as a storefront. It was a move that only made sense for every individual company if they knew that none of the competition would be capitalizing on their threatened withdrawal.
Amazon’s acting like a bully aside (because in the matter of the Agency Model and its potential legal implications that that does not apply) they have built the simplest and most usable way for readers everywhere to access eBooks. Nobody else has come close, despite competing efforts from Barnes & Noble’s Nook line, the Kobo, and more. This does not mean that anybody has been compelled to use it.
There would be no case against them if the Big 6 Publishers had come out with their own Kindle competitor and started offering all of their titles through it. The Kindle would still be there attracting self publishers and generally making itself useful in various ways, but it wouldn’t have the content to be so important.
These publishers don’t want to have to deal with building new distribution channels, though. They also don’t want to have to adapt when other people build them. The fact that there is a power disparity is undeniable, but that doesn’t mean that these publishers were ever powerless. Nobody compels them to use the Kindle platform. To say that they should be able to get away with their own anti-competitive and manipulative actions because otherwise the Kindle line will make people start seeing books as more affordable and ruin their profits is just ridiculous.
So, we’re back again to the conversation regarding the ever-unpopular Agency Model for pricing of Kindle and other eBooks. For once we have some actual solid new developments, though not necessarily any major changes as a result yet.
First off we have Random House, the only major holdout up until this point, caving on the issue and joining the other publishers in abandoning the traditional wholesale pricing in favor of setting the price retailers can sell eBooks for directly. While this isn’t precisely a surprise, it is a little disappointing. The advantage in the short term is clear for the company, however, since it makes them eligible to sell their books through the semi-popular Kindle competition application, iBooks (more on the Kindle vs iPad situation another time). The advantage may turn out to be less than useful in the long run, however, and not just because of the impact it will have on customer satisfaction.
This past week, European Union Antitrust regulators raided the offices of a number of publishers (at this time undisclosed) in furtherance of an investigation into potential breach of price fixing regulations by the adoption of the aforementioned Agency Model. Given the high levels of concern the EU has for avoiding restrictions of competition, these companies could be on the hook for enormous fines if they are found in violation. While at this time there is no indication that anything more than investigation is happening, and certainly no charges are being filed, it has to be making people a bit nervous.
What amuses me most about all this is not the potential penalties that publishers may incur so much as how little I see them mattering in the long run. See, the overall impact of the model seems to have been nothing more than an increasing interest in self-publishing and eBook piracy. They’re really not doing themselves any favors.
The main argument in favor of the Agency model that I have heard seems to be directed specifically at Amazon and the Kindle. Amazon’s known for taking new bestsellers and discounting them to near- or even below-cost and making up the difference on the bulk of other sales. Given their success, probably good for business. In order to improve their Kindle platform they were doing something similar with eBooks for a while. It was just always cheaper to buy an eBook, which makes sense, right? Publishers came to the conclusion that it was actually devaluing their property. If customers came to expect eBooks to be cheap, then how could the publishing companies earn as much as they want? Hence the current situation.
Do people actually pay for books that cost more digitally than they do in a hardcover, though? Probably some, but you have to think it’s unlikely overall. It isn’t all that hard to grab a copy of the book you want through alternate means when you feel it’s the only way to get the book you need without being taken advantage of, and I’m informed it’s becoming an increasingly popular choice. I don’t endorse piracy, but you can’t blame customers for this one. You have to get value for your money, these days more than ever, and if the publisher doesn’t get that, then they’re responsible for costing both themselves and the author the sale.