John Paczkowski

Recent Posts by John Paczkowski

An E-Book Argument: Are Fixed Prices Needed to Preserve Publishing?

The U.S. Department of Justice’s decision to file antitrust charges against Apple and five of the nation’s largest publishers for conspiring to raise e-book prices may do more harm than good if it dissolves the new agency pricing model for books those companies created. At least that’s the case being made by Apple’s defenders.

Though it has its problems, they contend, the model adopted by Apple — which requires retailers to charge book prices set by the publisher, while allowing them to keep 30 percent of sales revenue — may actually protect the long-term interests of everyone in the e-book value chain: Author and publisher, retailer and consumer.

What Apple has been attempting to do with e-books is pretty much what it did with digital music: Standardize pricing*. And while that effort might still irk recording industry executives, it’s near impossible to imagine the industry today without iTunes. And Apple clearly has similar hopes for iBooks and the publishing industry.

“Apple [is] attempting to recreate an environment around books that exists around digital music: Establishing base-line pricing so that consumers understand the digital value of a ‘book’ in much the same way a single music track is worth 99 cents,” Auriga analyst Kevin Dede argues in a note to clients today. “And as we see Apple’s overarching philosophy, it appears to us that Apple is defending interests of all the members of its ‘book’ value chain, including authors, publisher, and customers, as it does with all its constituents that offer value to the end customer. There is no salvageable long-term business model in destroying any key participant’s position; all players need to see a reason to play the game.”

In other words, with its agency model, Apple has been working to set a basic market perception of book value. And one could argue this is a good thing. Setting an agreed-upon value, says Dede, brings stability to book pricing, which is typically pretty chaotic. “One day, a new best-seller may be on sale for $15.99 at a book store, but the next day, when some anxious customer is looking for it, the price may have returned to $29.99,” Dede explains. “This is the undesirable, unpredictable atmosphere we see Apple attempting to avoid.”

And, alleged collusion aside, setting baseline prices does do that. More, it preserves the value proposition of books themselves, regardless of the means by which they’re distributed — which is good for publishers and, more importantly, authors.

It’s also very good for Apple, and in the company’s best interests. This is not at all an altruistic effort by any means.

But it does raise e-book prices. And, of course, it prevents Amazon, which already controls about 60 percent of the e-book market, from taking a loss on every book it sells as it drives to dominate the market. Short-term, that’s great for consumers who can buy their e-books at a significant discount.

But long-term what does it mean for the value of a book, and the industry itself — authors in particular? If the value of a “book” continues to drop, what does that mean for them? What does it mean for the editors who work with them? The proof-readers that ensure their copy is clean? Right now, Amazon is the one taking the loss on books it sells at heavily discounted prices. Who takes the loss when a shift in public perception of book value makes those discounted prices the norm?

*Caveat: With iTunes Apple pays record labels a wholesale price for music and then sets retail prices itself. This is obviously not how the agency model works. The similarity that Dede is pointing out here is solely standardization of prices.

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