Amazon’s Price Fixing Attempt

This past weekend, I received a letter from Amazon.com. I know that I am not the only one who received this letter. I believe Amazon sent the letter to all Kindle Direct Publishing authors. Most likely, you received the letter too.

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I am dumbfounded that Amazon has turned to independent authors to try to get them to apply pressure on a major publisher to lower its ebook prices.

I urge you not to get sucked into Amazon’s argument. If Amazon can begin to dictate the price of ebooks, then you, as an independent author, will soon not have the ability to set the price for your own books either. Isn’t that one of the reasons you independently published in the first place—to have more control over the whole process, including price?

In their letter, Amazon states:

“We want lower e-book prices. Hachette does not. Many e-books are being released at $14.99 and even $19.99. That is unjustifiably high for an e-book. With an e-book, there’s no printing, no over-printing, no need to forecast, no returns, no lost sales due to out of stock, no warehousing costs, no transportation costs, and there is no secondary market – e-books cannot be resold as used books. E-books can and should be less expensive.”

I am outraged at a number of statements Amazon makes.

First, who determines what an “unjustifiably high” price is? The book seller, the publishers, or the consumer? In a free market economy, it should be the consumer, not the book seller.

Second, “E-books can and should be less expensive” than print books. The reason Amazon gives for this is that there are no printing costs. There is a flagrant error in thinking here. The price of a print book is not solely based on the cost to print the book. Sometimes, the information in the book drives the price. For example, specialty books that contain information that cannot be found elsewhere are priced higher than the average fiction book even if the cost to print is the same. In these cases, the consumer is paying for the information.

Third, Amazon states, “Hachette has already been caught illegally colluding with its competitors to raise e-book prices.” What Amazon doesn’t remind you is that the collusion had to do with steps these publishers took to stop Amazon from steeply discounting their ebooks. It had to do with something called the “Agency Pricing” model which was different from the “Wholesale” model. With the Agency Pricing model, retailers could not discount books the same as with the Wholesale model. Needless to say, the DOJ lawsuit threw out the Agency Pricing model. Therefore, Amazon has the ability to discount ebooks, like they do with print books. Instead, Amazon is trying to get Hachette to lower its prices so it won’t have to discount ebooks and, as a result, keep more money from each ebook sale.

Fouth, Amazon wants authors to send Hachette letters stating, “We have noted your illegal collusion. Please stop working so hard to overcharge for ebooks. They can and should be less expensive.” I think instead, we should be sending letters to Amazon stating, “Monopolies are still illegal in the United States. The main reason monopolies are illegal is because such entities get into price fixing. Price fixing is an agreement between participants on the same side in a market to buy or sell a product service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level. Whether a price is fixed high or low, it is still price fixing. Your misguided attempt to get Hachette to lower their pricing is an attempt at price fixing, plain and simple.”

Do not be deceived. Amazon does not care about the consumer and offering “affordable” ebooks to consumers. It is a business. Amazon only cares about profits and what will bring it the most benefit.

Needless to say, I will not be sending a letter to Hachette. I for one, still believe in and will stand for a free market economy.

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eBook Price Trends

The Wall Street Journal recently noted that the many people receiving e-readers as gifts at the end of 2011 would find that “the price gap between the print and e-versions of some top sellers has now narrowed to within a few dollars.”

Many big publishers have adopted the agency-pricing model (where publishers set the price of the ebook, not the retailer) in rebellion against Amazon’s $9.99 pricing strategy for ebooks. Publishers were scared that Amazon could gain control of pricing and then continue to drive ebook prices down, eventually paying less to publishers and decreasing their profits. As a result, many publishers are now pricing the ebook version of a new book only slightly lower than the price of the print version. For example, Walter Isaacson’s best-selling biography of Steve Jobs sells for $14.99 in the ebook version and $17.40 in the hardcover edition.

Interestingly, some experts are claiming that by increasing ebook prices, publishers have slowed the ebook market growth. However, it appears that this may not be true.

One market research firm, Yankee Group, found that, on the whole, ebook prices are falling. They report that “the average price of a consumer digital book had fallen to $8.19 by the end of 2011 from $9.23 in 2009.” This firm also forecasts that the average ebook prices will drop to $7 from the current $9 over the 2012 year.

Whether ebook prices rise or fall, I highly doubt that higher ebook prices will slow the growth of digital reading significantly. After all, digital reading is not just about price. It is about a new way to easily store and read books. eBook sales have grown and are still growing. The Yankee Group expects ebook sales to be 4 times higher by 2013 then they were in 2010.

If these conflicting reports leave you wondering what the best price for the digital version of your next title should be, take heart. There is no new hard and fast rule for pricing ebooks. I believe the old rule is still valid. Price your book within the price range of its competing titles. Pricing it significantly lower or higher than similar titles will curtail your sales.

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The Diminishing Return on eBooks

In BISG’s most recent Consumer Attitudes Toward eBook Reading survey, the organization found that ebook consumers say they are buying more books overall, but that their total dollars spent on books is decreasing.

No surprise.

With ebooks often offered at a much, much cheaper rate than their corresponding print books, consumers can buy more books and spend less money.

This does not bode well for the publishing industry. The advent of e-readers is not increasing the number of book consumers in our country, rather that number continues to decline. It does not take a mathematician to figure out that fewer readers spending less money on books means less revenue for the publishing industry.

I recently heard on a news broadcast that some of the major publishers were going to start testing to see what the market would hold in terms of ebook pricing. I think that was a fancy way of saying that many publishers are going to try to charge more for ebooks as a way to compensate for the diminishing income that the sale of ebooks (compared to print books) brings in.

What does this finding mean for you, a small or self-publisher?

I suggest that it means that you should be careful how you price your ebooks. Price them too low, and as digital book sales increase, your revenues will stay low. Price them too high, and few will purchase, also causing you to lose revenues over the long haul as digital books sales take up a larger and larger percentage of book sales overall.

Finding the right pricing for ebooks is important. Pricing them less than their print counterpart, but not so low that you lose revenue, is the key.

Be prudent and you may not experience those diminishing returns that the major publishers are concerned about.

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Amazon vs. Macmillan: The Real Loser

“Who will win and who will lose?” is the question that stalks every battle. You may be surprised at who the loser is in the battle that has been raging between Amazon.com and Macmillan publishing company this past week.

For some time, publishers have been concerned over Amazon’s pricing for Kindle ebooks. Amazon has set the price for Kindle ebooks at $9.99 and recently has been pre-selling upcoming releases from large publishers for $7.99.

Publishers are concerned that pricing ebooks at these low prices will create a demand in consumers for low-priced ebooks, and as ebook sales grow, publishers will ultimately lose out and not remain profitable.  As a result, many large publishers have decided to delay the release of ebook versions for their hardcover titles by three months, giving a chance for the higher priced hardcovers to sell.

Macmillan decided they did not want to capitulate to Amazon’s practice of price-setting for Kindle ebooks. They wanted to retain control of the price structure for their ebooks.

Macmillan met with Amazon and gave them a proposal for new terms of sale for their ebooks under a new model to become effective in early March. In the new model, Macmillan will set the price for each ebook individually. The plan is that Macmillan’s ebooks, released concurrent with hardcover releases, will be priced between $14.99 and $12.99.

Amazon did not want to accept Macmillan’s proposal. Instead, they tried to bully Macmillan into capitulating to the $9.99 price. When Macmillan refused, Amazon responded by ceasing to sell all titles by Macmillan both in print and ebook format. Kindle owners report that Amazon went as far as deleting all Macmillan sample chapters stored on their personal Kindles.

Who’s the bully? Amazon!

I believe that Amazon is desperately trying to keep the Kindle the front runner in e-readers. The Kindle currently represents an estimated 75 percent of the e-reader market (not counting smartphones and computers – just other hand-held e-readers). Amazon means to keep it on top.

How? By offering cheap ebooks. If I purchase a Kindle and can get ebooks from Amazon for $9.99, then why should I buy a Nook and have to pay $11.99 or more for the same title at Barnes and Noble?

Amazon does not care if they aren’t making money off of the sale of Kindle ebooks. Their cash cow is the Kindle itself. The profit they make from the sale of the Kindle is their motivation, not the sale of ebooks.

So who is the real loser in this battle? Anyone who owns a Kindle; the very people Amazon is supposed to be servicing.

Ultimately Amazon recognizes this, which is why it has said that “ultimately” it must capitulate “because Macmillan has a monopoly over their own titles,” forcing Amazon to sell its titles “even at prices it believe are needlessly high for e-books.”

In the meantime, I feel for all the Kindle owners caught between two battling forces when all they want is to be able to read the latest book from Macmillan and not have Amazon mess with the content on their Kindles.


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