The price is right? The debate over ebook pricing

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If the Department of Justice has its way, ebook prices are about to drop.

The DOJ says that Apple and various major publishers colluded on ebook pricing, each agreeing that the publishers would embrace an agency model for ebooks—one where the publishers set the price for the ebooks, with the retailer taking a percentage. That was meant to replace the wholesale model, where sellers like Amazon sold ebooks at prices they set themselves, paying publishers flat rates. Macmillan CEO John Sargent says there was no collusion, and that he “made the change to support an open and competitive market for the future.”

Printed books are more lucrative for publishers. Those publishers thus fear that lower ebook prices—and the associated lower margins—could negatively impact their earning potential if consumers continue to switch from real books to electronic ones. And that trend, of course, affects brick-and-mortar bookstores, too.

Senior editor Dan Moren thinks that’s troublesome. Staff writer Lex Friedman thinks it’s a good thing for consumers. Let’s see who’s right.

Lex Friedman: I’ve had a couple books published, and have a third on the way. Lower ebook prices are bad for me professionally. As a consumer, though, I like paying $9.99 for new books, just as I enjoy paying a buck for a new song. I read more after I bought my first Kindle, because buying three new bestsellers for the price of one hardcover appealed to my thriftiness.

Dan Moren: It’s not that I don’t like ebooks; I do. I own a Kindle in addition to my iPad and my iPhone, and I’ve read more than few books on them. Technology—it is grand! And while a $9.99 ebook price may be good for consumers looking to buy ebooks, it’s the idea of this becoming a race to make the cheapest ebook that worries me. After all, Amazon operates on the principle of selling its ebooks at a loss to bolster support for its Kindle platform. Which means that competitors have to drop their prices lower in order to keep up.

LF: You’re not wrong, and that’s a valid concern. But I don’t believe that Amazon can truly sell ebooks as a loss-leader forever; I’m of the belief that Amazon sells its cheaper e-ink Kindles at a loss, too—at some point, something’s gotta give.

DM: In which case, the question becomes: If prices just go back up above $9.99, what have we really gained—except putting Amazon’s competitors out of business and trading one monopoly for another?

LF: I misunderstood you. My point is, I don’t think prices will race far below $9.99. If competitors try to undercut that price point, that’s where I think the market gets unsustainable. But a $9.99 baseline strikes me as fairly akin to the 99-cent rate on the bulk of MP3s in the market. Yes, Amazon sells some music for a little less than iTunes—but not by much. And both Amazon and iTunes sell tracks at $1.29, too. But a 99-cent basepoint for music works fine for me, even though it means fewer brick-and-mortar music stores have survived, and that artists have turned to live performance and direct sales as income boosters. A similar path for authors—fewer bookstores, more direct connections with (and sales to) their readers—suits me just fine.

DM: How much of a price advantage are we really talking about, though? Right now, it seems that most books go for an average of $9.99 anyway. I look through the iBookstore, and I see titles at $7.99, $9.99, and $12.99. Which is actually pretty close to the same variation that we see with music tracks at 69 cents, 99 cents, and $1.29. If we’re going to allow variability anyways, then how is that different? Other then that we’re letting Amazon dictate the price instead of the publishers, thus allowing the retailer to pursue its own agenda—selling Kindles.

LF: I’d rather let Amazon—and other booksellers that can find innovative ways to compete—choose what price to hawk its wares at than let the publishers themselves. Amazon owes the publishers something, just like a car dealer must pay the auto manufacturer. I don’t want movie studios setting the prices on multiplex tickets, and I don’t want Perdue telling my local supermarket how much I should pay for chicken this week. Why is it more fair for publishers to set end-user prices than for other “manufacturers”? Doesn’t the “S” in “MSRP” stand for “Suggested,” Dan?

DM: Sure. What worries me is consolidating the power in the form of a retailer that seems to have a stronghold on the market. To me, the publishers compete with each other for the consumers’ money. And when it comes to Amazon, the company’s been known to wield the heavy end of the hammer by pulling thousands of titles from its shelves over a tiff with the publishers—which, in the end, hurts consumers more.

LF: But if the DOJ bans the agency pricing model, how does that give Amazon a head start? Can’t—won’t—the iBookstore match its pricing? Or, if it keeps its higher price point, find new ways to compete? Maybe interactive, optimized iBooks, like it does with music and the iTunes LP concept?

DM: And yet, in your vaunted comparison to music, we’re also talking about the agency model. In fact, agency pricing has become the de facto way of selling virtual goods. So, to borrow your argument, why should that be different for ebooks than it is for other types of virtual goods?

LF: It’s a good point. I don’t have all the answers. Either way, if bookstores keep selling books at substantially higher prices than ebooks can offer, aren’t they going to struggle long term regardless?

DM: You’re right; bookstores are going to have it tough no matter what. And I think that’s a shame—not necessarily for the giants like Barnes & Noble; I didn’t exactly shed a tear at Borders’s passing, I’ll admit. But for the independent bookstores that I’ve frequented for years, it is. And for physical books themselves. I think we’d both like to see a future in which books and ebooks can co-exist peacefully—and perhaps they will, but I worry that a scenario where we see a race to lower ebook pricing could have a negative impact on publishers’ inclination to produce actual books.

LF: I feel irked when the Kindle edition of a book costs more than the hardcover version. If Amazon can center prices back at $9.99 again, that problem mostly goes away. And you’re right, that may lead to publishers printing fewer actual books, hurrying along the steady decline in independent bookstores. But I think history is a telling, reassuring guide here: Music stores still sell vinyl records—even though my kids have absolutely no idea what those big circles do. And speaking of my kids, they actually help keep the real-world book market alive, I think: No parent wants to let his 18-month-old chew on a Kindle. So long as there are kids, there will be board books, and pop-up books, and I don’t mind feeling optimistic that if those survive, that regular old book-printing technology will, too.

DM: I agree on hardcover vs. ebook pricing—it does seem silly, and I have a harder time parting with $13 or $14 for an ebook than I do with $25 for a hardcover; call it the psychology of buying a physical good instead of a virtual one. That’s compounded by taking into consideration all the limitations of that digital work. Amazon is actually pretty good at things like letting me read my Kindle book on my iPad, but the Kindle itself isn’t terribly friendly to non-Kindle formats. And fragmentation between different ebooks formats is incredibly worrying, especially given the fundamental freedom of the printed word.

LF: Oh boy, are you ever right. It’s hard to hold your finger on an earlier page on an ebook, it’s hard to flip back and forth, and—with the notable exception of iBooks—it’s hard to know how many pages are left in the current chapter. I don’t expect ebooks to overtake the book market entirely until those things get better.

DM: Not to mention the current state of lending. Except in rare cases, I can’t lend my Kindle books to friends, and in cases when I can, it’s usually only for a limited time. My library only has a few virtual “copies” of most ebooks (when they even have the book I’m looking for), and there are hundreds of holds on most of those, meaning that it’s pretty tough to ever get one. And then you have to make sure that it’s in the right format for your reader, too.

LF: All that said, though, I’m sure you’ll agree that ebooks offer some very real advantages over their paper counterparts. I love that I can catch up on a few pages with my iPhone while I’m waiting for my takeout order to be ready, and sync automatically to the same page on my Kindle. I love that I can search for the first mention of a character. And I will admit to tapping and holding on words in real-life books for a moment, so accustomed have I become to inline ebook definitions.

DM: Totally. Definitions are huge for me, and when I’m reading a real book I’ll admit that I often feel too lazy to even pick up my iPhone and look up a word. And I enjoy being able to pack a Kindle for a trip instead of three hulking hardcovers—though I do like being able to read my actual book during takeoff and landing. Of course, many of these things could potentially improve over time.

LF: So we agree that ebooks have advantages. We agree that it would be a shame to lose real-world books, too. About the only thing we seem to disagree on is whether that means publishers should thus be allowed to set prices on their ebooks. If we let publishers do that, I think they’ll continue to push to raise prices on new releases as regular book sales decline. And overall, my belief—recognizing that my degree is in Linguistics and Cognitive Science, not Business—is that more affordable ebooks are better for the ebook market’s continued growth than the alternative.

DM: Overall, it’s a dicey situation, to my mind; it’s hard to fathom all the back-room deals that seem to go on in business. While the DOJ case has merit in abolishing practices like “most favored nation” clauses that retailers try to enforce from the publishers, ensuring that they get the lowest prices, I’m not sure that letting Amazon set prices is appreciably better than the model that currently exists. (And make no mistake here—thanks to its dominant position in the market we’re talking Amazon, not booksellers in general.) It strikes me as trading one devil for another.

LF: You’re not wrong. I’m not sure either option is ideal. I guess that if both choices are supbar, I selfishly lean toward the one that lets me get slightly cheaper books.

DM: As a consumer, I’m in favor of lower prices as much as the next guy—but I’m also willing to pay a little more for something that I want.

LF: You son of a librarian.

DM: Guilty as charged.

[Senior editor Dan Moren is actually the son of two librarians. Staff writer Lex Friedman is the father of three kids who really enjoy story time at the local library.]

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