# Lawsuit, how will it effect the E-author?



## SeverinR (Mar 9, 2012)

U.S. reportedly warns Apple, e-book publishers about price-fixing - latimes.com

Threatened lawsuits against E-publishers for price fixing to keep e-book prices high.

SOunds like it will help books sells, by allowing lower priced books, rather then artificially propping up prices.
Am I reading it correctly?

Not a direct publishing issue, but I thought it would still fit here, please if not move to more appropriate forum


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## Benjamin Clayborne (Mar 9, 2012)

I don't claim to have a lot of experience with publishing of any kind, but in general anything that puts a stop to price-fixing is good for everyone except whoever was doing the fixing.


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## SeverinR (Mar 9, 2012)

My thoughts exactly. Just checking to see if there was some positive I might have missed.


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## TWErvin2 (Mar 9, 2012)

I read this article and posted about it briefly on my blog yesterday.

If it is determined to be price fixing by the major houses and Apple, etc. and they are foced to compete/cut their ebook prices, it will be great for readers. However, I think it will also have an impact on small press and self-published authors whose works are often priced lower than the $9.99 or higher ebook price set.

It may draw more readers to ebooks, and thus a wider potential audience for both authors published with major publishers, as well as small press/self published. authors. The competition for those readers, I think, will become more intense.

Only time will tell.

I think that it seems odd that an ebook should be priced higher than a mass market paperback. I figure that except for a few instances, with large print runs by recognized best-selling authors, mass market paperbacks will largely disappear from the shelves.


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## SeverinR (Mar 12, 2012)

TWErvin2 said:


> I read this article and posted about it briefly on my blog yesterday.
> 
> If it is determined to be price fixing by the major houses and Apple, etc. and they are foced to compete/cut their ebook prices, it will be great for readers. However, I think it will also have an impact on small press and self-published authors whose works are often priced lower than the $9.99 or higher ebook price set.
> 
> ...



True, whats the current actual cost of printing a printed book? $3-5 of the $18-25 book.  Epub does away with the printing and alot of the marketing cost. 
The reader invests into the ereader to get books without having to pay for the paper.


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## Kevin O. McLaughlin (Mar 15, 2012)

My hunch is that the immediate impact on most writers will be very low.

OK, here's my guesses. Publishers will be forced to settle out of agency pricing. Retailers will be free to set their own prices. Publishers will fight hard to retain the 70% margin they get now; they will probably do so, rather than revert to the old 50% they used to get from retailers, on ebooks.

If publishers keep 70%, indies probably will as well. Amazon wants the indies self publishing to put a leash on publisher prices.

Amazon will begin slashing prices on some books, BUT, their ability to do so will be somewhat limited. At 50%, Amazon could cut a $16 ebook to $8 without losing any money (all $8 went to the publisher). At 70%, the publisher gets $11.20 for each sale of that $16 ebook, even if Amazon sells it for a buck. So to cut prices lower than that, they would lose money on each sale.

Which they might be willing to do on some "hot" titles, to bring in more readers. But they can't do on all books from the big six.

Publishers have done ALL of this to prevent low discounts on their books. Their answer to being told Amazon can now discount may very well be to *raise* prices. We could see all new ebook releases from the big six go up a few bucks, because they're counting on Amazon to discount them. Amazon may choose to discount only high profile ones, though, leaving the rest to hang in the wind.

Google and Apple both have much deeper pockets than Amazon, and can win a price war - if they want. However, both companies have had a negligent attitude toward their ebookstores so far. They're not showing any indication of interest in fighting that sort of war. If they do not, their market share (already tiny) will plummet. Apple could end up getting out of the ebook business, and simply include the Kindle App on each iDevice they sell (it's the CONTENT they want, not the sales - they are a device maker first and foremost).

B&N is making serious noise about spinning the Nook out as its own company within the next six months. It wouldn't shock me to see Google make an offer on that; and a Google Nook could be a powerful combination, especially if they managed to keep Nook boutiques in B&N's bookstores (while they last - B&N probably has less than two years from the Nook spinoff before bankruptcy). Partnering Google's programming skill with Nook's popular image would be a good combination.

So venues may change. Amazon might gain market share in ebooks, rather than losing it as they have been for the last year+. Publishers will need to walk very carefully - price too low, and they risk sinking B&N's print sales faster. Price too high, and they lose even more of the ebook market than they already have, which would be long-term deadly for their consumer book imprints.

Interesting times. Stay alert to changes - most of them represent opportunities, these days.


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## MichaelSullivan (Mar 21, 2012)

I think it is strange that the investigation game to price-fixing ebooks when publishers range on pricing is from $4.99 - $14.99 which is a big range - but look at mass-market paperbacks - they are almost always at $7.99 and sometimes $8.99 regardless of the publisher.  That seems more like price fixing then what is going on in ebooks.

I think the repercussions of this would be the abolishment of the agency model and the margins will go back to 50% to the retailer (as it is with paperbooks). The pubishers will still set the list prices as they have been - probably $6.99 - $14.99 and the retailers will discount hot books on sale to get movement.  The publishers will have less flexibility to offer sales on their own to promote what "they want to" - I don't think that will be a good thing for those publshed traditionally.

For self-published authors, hopefully they'll be able to change their "list price" so that they can still put stuff on sale independently of what Amazon / B&N puts on sale - but historically that has not been the case - the price of the book usually remains the same but the publisher has the ability to offer better discounts of some titles in exchange for deeper discounts.

Bottom line - the publishers still set list price in both models - it just gives the retailers the power to "push" certain titles to drive more sales.


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## Kevin O. McLaughlin (Mar 22, 2012)

The issue isn't whether the price is fair, Michael - it's *collusion* to fix prices. Competitors cannot collude to fix prices, and in this case, representatives from major publishers basically admitted to doing so (their responses to questions from a NYT reporter were printed in that paper, and have resurfaced as damning evidence). Mass market paperbacks were never fixed in price: retailers could sell them for the list price of $8.99, or could give them away, or sell them for a penny.

Under agency, six companies are alleged to have colluded to create and force on other retailers a system where the publishers fix the prices and retailers are unable to change them. That's the core legal issue.

I'll go on the record as saying I *don't* think we'll see a return to 50%. I think we will see the publishers settle a deal out of court where they retain 70%, but that it's a wholesale amount. Every indication Amazon will be OK with that - since they accept print books for as low as 20% discount, getting ebooks at 30% discount should be OK for them.

What will happen, then, is publishers will set list prices counting on Amazon discounting much of that 30%. In other words, if publishers really want a book sold at $10, they'll set the price at about $12.99 or $13.99, counting on Amazon discounting it down. What will be interesting to see is how much discounting Amazon actually does.   Will they discount very aggressively? Or will they deep discount only major books by big bestsellers, and leave the other books to not sell at all at the prices publishers set for them? Amazon already has tens of thousands of indie books at the $3-6 range. They don't really need to discount books from major publishers to that level, anymore.

But if they want to push their competitors very hard, they could drop every book from every publisher down so they earn virtually nothing per sale, and leave it there for a little while. It would be hard for other companies to compete. Apple and Google *could* compete, but have not shown willingness to lose money building ebook market share so far. Nook would be in trouble, as they probably could not compete with Amazon prices slashed to the bone. If Amazon opts to sell every book at an average break-even level, they could build market share very rapidly.

As for indies, I think we'll be able to continue changing our list price at will, as we have been for years now. Not sure what you mean about indies not being able to do this, though, Michael... I can change the list price on any of my ebooks whenever I want. I think not a lot will change for indies in this, honestly, because publishers will continue overpricing most of their books, which makes them uncompetitive, and Amazon will not bother to discount most of them.


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## MichaelSullivan (Mar 23, 2012)

Kevin O. McLaughlin said:


> The issue isn't whether the price is fair, Michael - it's *collusion* to fix prices. Competitors cannot collude to fix prices, and in this case, representatives from major publishers basically admitted to doing so (their responses to questions from a NYT reporter were printed in that paper, and have resurfaced as damning evidence).



But "agency model" wasn't about setting "a particular price" it was about having the publishers set the price rather than the retailers. I didn't see the response to questions so I can't comment on that.  Even without "collusion" prices do tend to a particluar point. As I mentioned mass market paperbacks, regardless of publisher, seem to list for $7.99 or $8.99. Assuming the publishers didn't all get together and agree on that price - it obviously has found that place because there is a good balance between high sales and reasonable profits at that level.




> Mass market paperbacks were never fixed in price: retailers could sell them for the list price of $8.99, or could give them away, or sell them for a penny.



Yes...but for whatever reason they don't.  (Probably becasue there's not enough margin left for them if they do. Everytime I see a hardcover or trade paperback at Amazon they discount it but the mass market books all seem to be at list price. (From the titles I've observed.  I'm not saying there is any "collusion" here just that the result to the consumer is the same.




Kevin O. McLaughlin said:


> Under agency, six companies are alleged to have colluded to create and force on other retailers a system where the publishers fix the prices and retailers are unable to change them. That's the core legal issue.



But the model doesn't indicate "what the price is" just how the money is distributed between creator and distributor.  I may be wrong but it wasn't the big-six that even came up with the idea. It was Apple who imposed it on them and they went to Amazon to ask for the same system -but it was a "single company" Amazon that came up with the idea. The publishers just liked the idea.



Kevin O. McLaughlin said:


> I'll go on the record as saying I *don't* think we'll see a return to 50%. I think we will see the publishers settle a deal out of court where they retain 70%, but that it's a wholesale amount. Every indication Amazon will be OK with that - since they accept print books for as low as 20% discount, getting ebooks at 30% discount should be OK for them.



I don't have enough data to say what discount Amazon gets from various publishers.  Bookstores usually get 50% - 60%.  Those that self-publish can get as low as 20% and Createspace gives 40%. I'm not sure what Amazon get's on average.



Kevin O. McLaughlin said:


> What will happen, then, is publishers will set list prices counting on Amazon discounting much of that 30%. In other words, if publishers really want a book sold at $10, they'll set the price at about $12.99 or $13.99, counting on Amazon discounting it down. What will be interesting to see is how much discounting Amazon actually does.   Will they discount very aggressively? Or will they deep discount only major books by big bestsellers, and leave the other books to not sell at all at the prices publishers set for them? Amazon already has tens of thousands of indie books at the $3-6 range. They don't really need to discount books from major publishers to that level, anymore.



Discounting a "big seller" only makes sense if there are other markets discounting the big sellers so that you can compete on price and get the buy rather than the other guy. With Amazon imposing some "exclusive" policies (for instance for insertion into the Prime program) there is no competition and then I think they'll discount for short periods to get a sales boost then return the books to their "normal price" (which still may be discounted just not as much) to get the profit out of the sale.



Kevin O. McLaughlin said:


> But if they want to push their competitors very hard, they could drop every book from every publisher down so they earn virtually nothing per sale, and leave it there for a little while. It would be hard for other companies to compete. Apple and Google *could* compete, but have not shown willingness to lose money building ebook market share so far. Nook would be in trouble, as they probably could not compete with Amazon prices slashed to the bone. If Amazon opts to sell every book at an average break-even level, they could build market share very rapidly.



Amazon geneally discounts below "break even" when the agency model wasn't in effect they sold at a loss.



Kevin O. McLaughlin said:


> As for indies, I think we'll be able to continue changing our list price at will, as we have been for years now. Not sure what you mean about indies not being able to do this, though, Michael... I can change the list price on any of my ebooks whenever I want. I think not a lot will change for indies in this, honestly, because publishers will continue overpricing most of their books, which makes them uncompetitive, and Amazon will not bother to discount most of them.



It may be that Amazon will adopt two policies - one for traditional publishers and one for indies - but the typical model is to set the MRSP - and it doesn't change - but then to adjust the "discount" offered when you want to put something on sale. The result probably won't matter as it's six one way 1/2 dozen the other - but in some ways it wouldn't be such a bad thing for consumers to get the idea that a book being sold for $0.99 isn't it's "list price" but instaed a sale from $4.99 to show that the book has a higher intrinsic value.


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## Kevin O. McLaughlin (Mar 23, 2012)

Michael, Amazon offers a 4 for 3 deal on almost all MMP priced books. Actually why I set "By Darkness Revealed" at $7.99 in print - I was hoping it would get added to that deal (it was). That's a great example of discounting. The point is that retailers CAN'T discount under agency. They might _decide_ not to, under wholesale. But they have the choice. Agency pricing takes that choice away. And if that was reached by collusion, then it was illegal and warrants penalties.

According to the NYT interview, it wasn't Apple that forced that system on the Big Six. If the publishing execs quoted are to be believed, it was collusion between Apple and publishers. Suggested by Steve Jobs, yes, but Apple frankly didn't have the power to force anything on anyone. Still doesn't; they're a small retailer in ebooks.

Discounting big sellers always makes sense.   If B&N is selling the latest hot books at list price, then even a 10% discount is a big deal. If B&N drops it 10%, Amazon goes deeper. Pretty basic business strategy across all sorts of businesses.

As for indies and repricing: indies are publishers. Publishers set list prices, in wholesale. Under wholesale, the publisher *always* has power over the list price. They can change it every week, if they want to. Generally they don't, but they can - we can. Same deal. Now, no one can force Amazon to discount given books. All we can do, if they don't discount them, is adjust the list price to where we want it to be.

So Stephen King's latest ebook might come out at $14.99 from his publisher. Amazon discounts it to $9.99, taking a fifty cent loss on each sale as a loss leader. I list my new book for $5.99, and then decide I want it on sale for $2.99. So I drop the price to $2.99. The difference is that on King's book, it shows that it's being discounted (shows the percent it is discounted next to the current price). On ours, it just shows our new list price. Very close to the same effect, however.


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