Monday, March 12, 2012

Kindle News: TIMELINE: Ebook Pricing Wars - what DOJ would have seen. Update


At the Kindle Community Forums last night, I was struck by a few who actually insisted in the strongest terms that Apple's Steve Jobs and the Big 5 (which doesn't include Random House because they weren't allowed into the Apple iStore due to their disinterest in the Agency model at the time) had nothing to do with Amazon's raising prices and that Apple came into the arena later on..  So, I posted a timeline there and will include one here also, with an added paragraph.

January 26, 2010
Jeffrey A. Trachtenberg wrote, for the Wall Street Journal at the time it happened (Jan. 26, 2010), before ebook prices were raised, that Steve Jobs was in NY, to talk with the big publishers, and S. Jobs was suggesting they charge higher prices and use Apple's Agency Model.
' Apple is asking publishers to set two e-book price points for hardcover best sellers: $12.99 and $14.99, with fewer titles offered at $9.99... '

Once they all came to an understanding and had Jobs/Apple as leverage against Amazon's insistence on lower prices for NYT bestsellers and once Jobs had the publishers behind his brand new iBook store (that had few books (~60,000) AND (as mentioned) he would not allow Random House, the largest publisher, into the iBook Store because they refused to do Apple's Agency plan), the Big5 publishers felt they could force Amazon to the Agency model by not providing e-books to them otherwise.

As we've seen, Walter Isaacson's biography of Jobs quotes him on this specific activity:
' "We told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that's what you want anyway."  They went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.' " '

January 27, 2010
THEN when Apple did the launch of the iPad the next day, a VIDEOclip at the end of the event, shows Mossberg asking Jobs why a shopper would buy a book for $14.99 from Jobs when they could buy it for $9.99 from Amazon.
Jobs says that this "won't be the case."

Mossberg asks (and this videoclip is part of the lawsuits) if Jobs meant Apple's wouldn't be $14.99 ... or that Amazon's wouldn't be $9.99.

Jobs paused and said "The prices will be the same."

And, as you can see, this was said -before- the bulk of NY Times Bestsellers went up to ~$12.99 to $14.99++ at all stores after having been at $9.99.  And customers have been quite angry when the e-book price is higher than the hardcover price.

  Here's the full videoclip and story.

January 30, 2010
On January 30, 2010, Amazon pulled Macmillan books over the Agency model issue. And then, as reported, Amazon "caved in."

February. 1, 2010 - from news story linked above
' says it will give in to publishing giant Macmillan and agree to sell electronic versions of its books even at prices it considers too high. '

That White Flag image headed my blog post of Jan. 31, and the opening was that
'Brad Stone of the New York Times just tweeted that Amazon has "capitulated" to Macmillan's terms. '
Stone moved on and is now a senior writer for Businessweek and seems to be able to write longer, even more detailed articles now.

So, it's all documented
It's also further confirmed by Isaacson's quoting of Jobs (see above) describing, in the biography how Steve Jobs and the Big5 did discuss it, did agree to raise prices that could not be lowered by any one store unless all of them were given permission by the publishers, and were telling Amazon that it would be the Agency model or nothing, with the new leverage they had from the iBookStore.

More detailed set of newspaper stories that includes much more than this
This set details the "History of the E-book Pricing Wars - Articles, Video, with Sourcing"
  As regular readers of this blog know, the set of detailed newspaper stories from that time in chronological order includes linked sources for all of it.  The set is at the bottom of that first page.

As I mentioned on the Kindle forums, I'd like some feedback if possible to see if this timeline is new to many and whether, maybe, most newspapers not reporting it in the substantial detail that a very few did served to keep it pretty much out of view of general readers.

I think that it seemed so political and publishing-focused at the time that most newspapers and readers were not following it closely.

Creative and very amusing take on the blog defense Friday by the President of the Authors Guild, Scott Turow
You can read this at Joe Konrath's blog posting, "Barry, Joe & Scott Turow."

  There are many indications that most authors would do better financially in the new world of digital publishing as long as they safeguard their rights to the e-book editions of their work.

UPDATE - Another article making some excellent points:
From Let's Get Digital, David Gaughran responds to Scott Turow in Scott Turow: Wrong About Everything   It's a strong piece.

  Thanks to Q for the URL.

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  1. Your timeline ignores the fact that those $9.95 prices existed because Amazon was selling many of the more popular titles from major publishers well below cost. At that time, Amazon had some 90% of the commercial ebook market. Selling below cost would have prevented any real competition from developing. Only Amazon had the deep pockets to do that. B&N, now being forced to shutter its stores, certainly couldn't.

    That's also the classic behavior of a would-be monopolist. Competition eliminated, Amazon would then have been able to dictate the wholesale prices it'd pay publishers and authors (low) as well as the retail price you or I'd have to pay to buy the book (high). We'd both lose and Amazon would make out like a bandit.

    Agency prices prevented Amazon from owning the ebook market, and now has about 70% of the ebook market. That's still high but, given the popularity of the iPad, that percentage is likely to come down still more.

    And keep in mind that what Steve Jobs was advocating to publishers is almost identical to what he offered to music distributors with the iTunes music market. If the latter isn't illegal, neither is the former. If anything, the iPad is more open to ebooks from other sources than the iPod/iPhone/iPad are to music. Amazon can DRM books it distributes to the Kindle reader on an iPad. It can't get music on an iPad without removing the DRM.

    1. Mike, What's ironic is that I ALMOST ended the blog article by saying I have always been amused that Big5 defenders warn us about how Amazon would otherwise eventually have a monopoly and then we would see them raise the prices, like, to what we have NOW and have had for the last two years.

      In order to protect us from that, the Big5 gave it to us Immediately and, if they could, forever after.

      Don't worry about consumer costs (not that any publisher really does), it's all about control and ALL sides come from their own perspective (this is just plain human), and the world is too competitive for only one to come out on top forever, though many feel more than comfortable with Apple doing that with a 44% average margin vs Amazon's 2-4% from what I read last week.

      I gave a specific timeline for the reasons I gave, that people denied Apple was involved and that it was planned in advance. The timeline is accurate -- so was the planned pricing and amounts. The other scenario given was just not.

      Again, I don't want the Big5 protecting us against a monopoly that would someday raise our prices to what they already immediately became as of Jan. 31, 2010, thanks to the warners.

      Larger publishers trying to artificially push the prices high for 2 years so far, crying Big Bad Wolf Amazon don't do themselves a favor in any way. There's no credibility there. None of it is justifiable, in my view. It's a way to keep an older way of life alive, despite hugely changing technology, but it's self-destructive for the future.

      None of that applies to smaller publishers trying to make it in a world that focuses on 'large,' unfortunately.

      You do good work, and I hope that things work out well for the publishers like you who are just trying to offer quality and get some appreciation for it.

  2. Loved the critical responses to the Turow article.

    I don't think one can establish that agency pricing is responsible for cutting into Amazon's market share, it's just the result of normal competition. As others point out, when Kindle first shipped, Apple, Google, B&N, Kobo were not in the business of selling ebooks. There was Microsoft, Sony, Mobipocket (already owned by Amazon) and no doubt other smaller companies (my historical knowledge doesn't reach that far). Amazon was a big fish in a small pond; "90%" was not all that much to brag about. There was really no point at which Amazon had the prospect of 'eliminating the competition" via their subsidized prices, unless would be competitors just shook their heads and gave up without even trying (maybe Microsoft is in that group). Today the pond is much larger, but Amazon is a much larger fish as well. So to say agency pricing has been helpful to publishers in reigning in Amazon's monopoly is dubious. I don't see that it has accomplished anything except hurt Big5 sales, profits, and author royalties, but maybe they can willfully ignore this given the rapid growth of the market and imagine that they can establish these higher price points if they are stubborn enough. (I purchase very few books at those higher price points, except for O'Reilly titles, which have more enduring value to me, are DRM free, and available in any format I want to use). As Konrath etc. point out, more likely agency pricing just makes Amazon's ebook business more profitable than it was, so they are able to invest in ecosystem and devices instead, which is in the long run what keeps them ahead of the pack.

    The comparisons to MP3 market are not directly pertinent, though informative. DRM has effectively been gone since Apple jumped on the bandwagon in 2009 (Amazon was already DRM free), and pricing of music has always been much more standardized. You never saw single CDs selling for more than $20 (except for imports, etc.) for example. So Apple just wanted to flatten the price structure so buying decisions were less price sensitive and more frictionless.

    But with books, pricing is much more complicated, and Apple didn't want to get stuck competing with Amazon on price (which they know little about), and disturbing their nice clean iTunes profits. So they engineered the agency model to prevent such competitive pressures. But really, they don't seem to be selling that many books (they always talk about 'downloads' as if those were equivalent to sales). I don't think they care that much as long as they have a steady revenue stream to work with.

    In any case, it's ironic that music publishers fought tooth and nail with Apple against the evil of 99-cent songs (and lost), while in ebook land, Apple is Big5's hero against the evils of Amazon's $9.99 ebook price point (book publishers having drawn the wrong conclusions from the MP3 battles). I think in the end they'll lose that battle, as smaller and smarter publishers (and authors) continue to capitalize on the opportunities at lower price points, or set up DRM free bookstores so they get more of the profits.

  3. Andrys, I want to commend you on a well-researched and well-written article! It wouldn't surprise me if it's consulted by people involved in the case, although they will have developed their own, of course.

    Well done!

    1. Bufo,
      Thanks very much. Coming from you, who's so meticulous and who doesn't miss anything, that's an especially nice compliment!

  4. Loved the responses to the Turow post.

    Still, I don't understand the nature of the DOJ suit or what options they might consider as remedies. They haven't really disclosed very much about it. Agency pricing may be unfriendly to consumers, I think the Big5 were foolish to agree to all of Apple's terms, and I don't think it has been very effective in slowing Amazon down, but it is not illegal AFAICT. And in the long run, I think it will prove unsuccessful as a strategy for maximizing income, regardless of the action DOJ takes.

    So many commenters assume that agency pricing is some sort of bulwark against Amazon domination, but as Konrath et al point out, pricing is just one of the tools at their disposal. Instead of subsidizing book sales, they are investing in other things to solidify their lead: kindle lending library, improvements to ecosystem etc. Naturally they'd prefer to be able to use pricing as well but it is not essential to their success.

    1. Tom,
      Am back now. I think the European Union (name?) are a clue -- they said last week that they'll settle it if they stop the things that the Union finds objectionable. Like, price fixing :-)

      The price fixing is less illegal than it was but I think they went beyond even what was expected, in that while entities can set their own prices, it's the spectacle (in this case) of a group of the largest, most influential ones, agreeing to a model and all following it, with the intent that those selling their wares must never decide, on their own, to have the most common of bookstore activities in the history of books, a bookstore SALE, to compete against other stores.

      They made competition among stores impossible. They essentially made slaves out of bookstore owners...owners who cannot decide on how to sell, when their very revenue comes from knowing how best to interest the consumer and get them to buy.

      The publishers just want selling machines -- and would be happy if they could get that. No store vendor cut necessary.

      Amazon of course has the advantage of a history of low-balling + excellent customer service in all areas of its more-than-bookstore.

      Now, the Agency, in essence, forced Amazon to make more of a profit than they did in the past, on each book, while other bookstores also could not lowball Amazon and vice versa. However, the pricing has driven away buyers for the more traditional but now, much more expensive than other, "e-authors" -- and that's not good for anyone.


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