Archive for the ‘publishers vs ebooks’ tag
The Wall Street Journal is reporting that the U.S. Department of Justice has filed an antitrust lawsuit against Apple and the five publishers who started the agency model. Following a warning last month from the DOJ that it was preparing to sue there have been reports that at least some of the publishers were negotiating a settlement. The WSJ says that it expects a settlement with three of the publishers to be filed later today. Besides Apple, the holdouts appear to be Penguin and Macmillan. If Apple and the other two publishers decide to fight to the bitter end, it could take years before a final settlement is reached.
Apple and the ‘gang of five’ publishers entered an agreement to initiate the agency model of ebook pricing when Apple was nearing the launch of the first iPad. Prior to the this, ebookstores could set their own pricing for ebooks. Under the agency model, which Amazon and the other ebook resellers were forced to accept, the publishers gave themselves the sole right to fix the prices at which their ebooks were to be sold. No more sales, coupons or other discounting of ebooks from the group of publishers in the agency model cabal unless the publishers themselves initiated it.
Publishers were worried about Amazon selling bestsellers at what they consider to be a price that is too low. Apple wanted to level the playing field because its iBooks store could not hope to match Amazon’s pricing. Amazon reportedly often sold bestsellers as loss leaders before the agency model crawled out from under its rock.
For consumers, any settlements will probably mean a return to cheaper ebooks, at least in the near term. Longer term it may mean fewer ebookstores to buy from since Amazon has the ability to undersell everyone else. Lack of competition, whether it be from monopolistic practices or a dearth of sellers, usually leads to higher prices and is not good for consumers.
For publishers, a win by the DOJ will mean they will have to find other ways of thriving in an increasingly digital world without resorting to illegally fixing prices in an effort to prop up a creaky and outdated business model.
The traditional publishing industry seems to expect ebooks to subsidize the hardcover bestsellers that the old model is built around. From the consumer’s point of view there are many reasons why ebooks should be much cheaper: Everything from the much lower to practically nonexistent costs of production, warehousing, distribution and returns of unsold books when compared to paper books to the fact that when you ‘buy’ an ebook you are actually just buying a license to read it and cannot resell the ebook or give it away to someone else when you are done with it.
Of course ebooks do share some of the costs of pbooks – professional editing, for example. Something you have probably noted is missing from a lot of indie-published ebooks.
I suspect that factors such as the elimination of the used book market and the sales lost to shared books, when combined with the fact that readers who read digitally usually read more, may well lead eventually to more sales of popular titles than when they were only available in paper format.
The three publishers who have settled must cancel the agreements they made with Apple and other sellers that include a ‘most favored nation’ clause disallowing other retailers from selling their ebooks at a lower price and desist from restricting any retailer’s ability to set prices on their ebooks for a period of two years. The settlement does allow the publishers to enter into agency model pricing agreements with retailers with restrictions that the amount of overall ebook discounts does not exceed the aggregate amount of commissions the seller earns from selling the publisher’s ebooks. This would prevent retailers from selling the ebooks at an overall loss.
The settlement with the DOJ does not provide for any restitution to be made to consumers who have purchased ebooks that were priced according to the agency model. But 16 states initiated a lawsuit against the publishers today and this, along with another class action suit that has been ongoing will probably result in some amount of financial restitution being made.
The settlement probably won’t take effect for about 60 days. I just glanced briefly through the Kindle Store and so far there seem to be no changes – ebooks from the publishers that have settled still bear the disclaimer about their prices having been set by the publisher.
You may remember that Random House was the one major publisher that didn’t join in the agreement with Apple at its inception – a decision that in hindsight looks very wise indeed. Instead, Random House waited until about a year later (right before the iPad 2 launch) to adopt agency model pricing.
The DOJ action is not about the five publishers and Apple using the agency model to set ebook pricing per se, but rather about the way in which they colluded together to do so. So when Amazon and other resellers begin discounting ebooks from the publishers who settle will it have any effect on Random House’s pricing? Random House may well find itself in a position where its bestselling titles are priced much higher than those of the competition.
You can read the proposed settlement here.
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Macmillan doesn’t do public libraries. HarperCollins only lets libraries loan out its ebooks 26 times before they expire. Now that the Kindle, the largest ereading platform, has access to public library ebook collections will other publishers add restrictions or withdraw their ebooks from libraries altogether for fear of loosing sales?
Hopefully this won’t happen, and if it does I think it will be the publisher’s loss as much as their reader’s. There is a very long-standing debate as to what effect public libraries have on book sales, but at the very least we can say that libraries not only spend a lot on books themselves, but they also encourage a passion for reading in the young, who grow up to become customers of the publishers.
Besides, if done right the library ebook lending feature can result in at least some ebook sales. Unlike Barnes & Noble, Sony, Kobo and other ereader makers whose ereaders support library ebooks, Amazon has realized this and has made an effort to try to convert library checkouts into sales where possible.
When you borrow a library ebook in the Kindle format you are redirected to the Kindle Store. This enables Amazon to keep track of your checkouts. When Amazon first announced that the Kindle platform would be able to borrow ebooks from OverDrive-powered libraries I checked out an ebook from my library on my Kindle to try the system out.
A few days before the expiration of my ebook loan Amazon sent an email reminding me of the expiration date and telling me that any annotations and bookmarks I’ve made in the ebook will be preserved in case I later purchase it from the Kindle Store or borrow it again. The email also contained a Buy This Book button. You don’t get emails like this for other ereaders, whose makers probably have no notion of your library activity.
I’m sure Amazon will generate sales in this manner from readers who could not finish the ebook before the expiration date or who decide they want to have the book in their collection. B&N and the other ereader makers only offer library compatibility as a feature to help sell ereaders. Only Amazon has leveraged the feature to also generate more ebook sales.
OverDrive is also looking for ways to generate ebook sales to library patrons. At the Frankfurt Book Fair the company is showing off its new WIN Catalog (Want It Now). OverDrive’s WIN Catalog has the potential to serve as an excellent book and audiobook discovery tool for patrons of participating libraries.
The WIN Catalog will provide complete listings of bestselling, mid-list and backlist titles in a publisher’s catalog. Most of these titles, especially those out in the long tail, are not available at libraries. The WIN Catalog will provide samples and buy links for these titles and public libraries that provide access to the WIN Catalog will receive affiliate fees for sales referred through their websites.
“Public libraries offer for lending a small fraction of publishers’ eBook or audiobook catalogs,” said Erica Lazzaro, OverDrive Director of Publisher Relations. “The WIN Catalog will take hundreds of thousands of early, midlist, and backlist eBook titles that are virtually invisible to library customers and present them for discovery. WIN will also enable for patrons who do not want to wait for popular titles to become available the option to immediately shop for it from a list of booksellers that support their local library.”
“At this time, libraries do not have the funds to purchase all of the bestselling titles, let alone mid- and back-list titles,” said Christopher Platt, director of collections and circulation operations at the New York Public Library. “With the WIN Catalog from OverDrive, in addition to the tens of thousands of eBooks we offer for lending, we will have the ability to reference, browse, sample and provide a connecting point to entire catalogs of eBook titles, allowing us to serve our patrons and community in the best way possible.”
While ebooks and ereaders may be anathema to brick and mortar bookstores and the paper industry, I think they are leading to a reading renaissance that cannot but help to lead to more book unit sales, albeit the increased sales will be in digital format, not paper. It looks like the library ebook lending feature has the potential to generate more book sales as well, not to mention giving patrons new ways to help support their local libraries.
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Seattle-based Hagens Berman Sobol Shapiro LLP (this is the same law firm that yesterday said it is investigating reports that authors are missing some of their ebook royalties) has filed a nationwide class-action lawsuit against Apple and five of the largest US publishers — HarperCollins, Hachette, Macmillan, Penguin and Simon & Schuster — alleging that they colluded to illegally fix prices of ebooks.
This stems from the agency model that Apple negotiated with these publishers before the launch of the iPad. Amazon was then forced to abandon its practice of selling ebooks at discount prices and start selling ebooks at prices set by the publishers. Price competition was stifled for all ebooks published by the five publishers as other ebooksellers were also forced to adopt the agency model.
Publishers were afraid that Amazon’s discount pricing and the accelerating popularity of the Kindle ereader would permanently set consumer expectations for lower prices, even on other ereaders.
“Fortunately for the publishers, they had a co-conspirator as terrified as they were over Amazon’s popularity and pricing structure, and that was Apple,” said Steve Berman, attorney representing consumers and founding partner of Hagen Berman. “We intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an e-reader.
“Apple simply did not want to enter the e-book marketplace amid the fierce competition it knew it would face from Amazon and its discounted pricing,” Berman added. “So instead of finding a way to out-compete Amazon, they decided to choke off competition through this anti-consumer scheme.”
The complaint notes that Apple CEO Steve Jobs foreshadowed the simultaneous switch to agency pricing and the demise of discount pricing in an interview with The Wall Street Journal in early 2010. In the interview, he was asked why consumers would buy books through Apple at $14.99 while Amazon was selling the same book for $9.99. “The prices will be the same,” he stated.
While free market forces would dictate that e-books would be cheaper than the hard-copy counterparts, considering lower production and distribution costs, the complaint shows that as a result of the agency model and alleged collusion, many e-books are more expensive than their hard-copy counterparts.
“As a result of the pricing conspiracy, prices of e-books have exploded, jumping as much as 50 percent,” Berman said. “When an e-book version of a best-seller costs close to – or even more than – its hard-copy counterpart, it doesn’t take a forensic economist to see that this is evidence of market manipulation.”
Berman pointed out that The Kite Runner, for example, costs $12.99 as an e-book and only $8.82 as a paperback.
“What is most loathsome about the behavior of Apple and the publishers is that it is stifling the power of innovation, the very thing Apple purports to champion,” Berman added. “A few big-business heavyweights are taking a powerful advancement of technology that would benefit consumers and suffocating it to protect profit margins and market share.”
According to the lawsuit, Apple and publishers were concerned that Amazon’s $9.99 uniform pricing for bestsellers would create market pressures for other e-booksellers – including Apple – to do the same, cutting into profitability.
The lawsuit goes on to claim that because no publisher could unilaterally raise prices without losing sales, they coordinated their activities, with the help of Apple, in an effort to slow the growth of Amazon’s e-book market and to increase their profit margin on each e-book sold.
The lawsuit claims Apple and the publishers are in violation of a variety of federal and state antitrust laws, the Sherman Act, the Cartwright Act, and the Unfair Competition Act.
Once approved, the lawsuit would represent any purchaser of an e-book published by a major publisher after the adoption of the agency model by that publisher.
The lawsuit seeks damages for the purchase of e-books, an injunction against pricing e-books with the agency model and forfeiture of the illegal profits received by the defendants as a result of their anticompetitive conduct, which could total tens of millions of dollars.
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Richard Blumenthal, attorney general of Connecticut, has sent letters to both Amazon and Apple expressing concern that their agreements with publishers may block competitors from offering ebooks at a lower price.
Apple and Amazon have both negotiated agreements with the largest publishers that include “most favored nation” (MSN) provisions that are designed to ensure that the two resellers receive best prices over competitors.
After the introduction of the so-called “agency model” of ebook pricing many titles are offered at the same price regardless of where one shops. Blumenthal is concerned that consumers are adversely affected as other resellers are effectively blocked from offering lower prices than Apple or Amazon.
“These agreements among publishers, Amazon and Apple appear to have already resulted in uniform prices for many of the most popular e-books — potentially depriving consumers of competitive prices,” Blumenthal said. “The e-book market is set to explode — with analysts predicting that e-book readers will be among the holiday season’s biggest electronic gifts — warranting prompt review of the potential anti-consumer impacts.
“Amazon and Apple combined will likely command the greatest share of the retail e-book market, allowing their most-favored-nation clauses to effectively set the floor prices for the most popular e-books. Such agreements — especially when offered to two of the largest e-book retail competitors in the United States — threaten to encourage coordinated pricing and discourage discounting.”
Blumenthal notes that under US antitrust laws MFNs are not illegal per se, but neither are they per se legal.
Blumenthal has invited the two companies to visit his offices and discuss the matter. You can read the letters at the links above.
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The announcement last week by the Wylie Agency of its Odyssey Editions and the exclusive distribution of content through the Kindle Store may have made Kindlers happy, but the move has resulted in a firestorm of protest from other publishers.
The main points of contention are that:
Competition: Wylie will now be competing with other publishers.
Possible conflict of interest: Wylie is a literary agent; being a publisher at the same time could result in conflicts of interest.
Content is restricted to the Kindle Store rather than being device agnostic. This is less of an issue for readers now that the Kindle reading applications are available on many platforms, but it is of course an issue for Amazon’s competitors.
Disputes over ebook rights: Older contracts between authors and publishers (such as those governing the titles released by Odyssey Editions) were made before ebooks were around. The authors of the Odyssey ebooks had pbook contracts with other publishers. Whether or not these older contracts also apply to ebooks is still unsettled and is probably the major reason we don’t have more backlist and out-of-print books published digitally.
Random House, which usually seems to have a relatively progressive approach to ebooks, questioned Amazon’s legal right to sell the Odyssey titles. Random House also says that as Wylie is now a publisher and therefore a competitor they will not conduct any new English-language business with Wylie on a worldwide basis.
There is a possibility that the Odyssey Editions may end up being pulled from the Kindle Store. As an avid reader, and since ebooks are my delivery method of choice, I want to see all of the backlists and out-of-print and hard-to-find titles available for me to buy and read. At the very least, Wylie has put the issue of ebook rights of these older books on the front burner. Most publishers do not seem to be much interested in doing this, even though digitizing their backlists and out-of-print books would be a way for publishers to monetize these titles and better serve their customers.
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Arrow Publications, LLC, which is the publisher of MyRomanceStory.com, has announced that their romance graphic novels will soon be available through LongBox, Inc.
LongBox will provide comics and graphic novels to readers on computers, ereaders, gaming systems and other handheld devices via its forthcoming LongBox Digital ereading application. Currently LongBox appears to still be in beta, but should be open for business soon.
Graphic novels from Arrow can currently be read on your computer and iDevices and are available from the above link and at iTunes.
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The iPad continues its takeover of the educational market. XanEdu, which claims to be the leading faculty-preferred provider of CoursePacks and custom textbooks, has launched an iPad publishing application.
Instructors will use the XanEdu CoursePack Management System to publish materials that students will then be able to access on an iPad. This capability is in addition to being fully integrated into popular learning management systems on campus. XanEdu’s iPad platform also enables students to take and share notes for a more collaborative, engaging learning experience.
“XanEdu, as the largest independent provider of Harvard Business Publishing material is a trusted partner and consistent innovator,” said Maureen Bestes, VP of Higher Education of Harvard Business Publishing. “In the fall, we’re launching interactive spreadsheets for financials cases with XanEdu.
XanEdu publishes over 15,000 titles annually at over 2,000 institutions and is the largest provider of custom coursepacks in North America.
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Fresh Air has an interview with Ken Auletta which is worth listening to. The title is Can the iPad or the Kindle Save Book Publishers? and follows Auletta’s article in the New Yorker entitled Publish or Perish of a few days ago. The Auletta segment on Fresh Air lasts about 20 minutes.
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The ABC Fas-Fax report of newspaper circulation was out yesterday and Paid Content reports that while daily circulation was down by 8.75 percent compared to last year, the number of digital editions sold by the top newspapers rose significantly. Paid Content also has a table of the top 25 newspaper daily e-editions that compares 2009 and 2010 digital circulation figures.
Editor & Publisher reports that while ad revenue was still falling for many newspapers, it was at least falling at a slower pace. Circulation of p-editions also continues to fall but did not accelerate its slide and indeed the decline is somewhat less severe than last fall’s 10.6 percent year-over-year decline.
Definitely digital subscriptions on devices such as the iPad and ereaders are going up, but how much it will help to prop up sagging newspaper and magazine publishers it is still too early to tell.
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In a rather long article this morning Macmillan CEO John Sargent writes about the agency model and about Macmillan’s ebook pricing strategy. I’ll just quote an excerpt below:
We will price our e-books at a wide variety of prices. In the ink-on-paper world we publish new books in different formats (hardcover, trade paperback, and mass market paperback) at prices that generally range from $35.00 to $5.99. In the digital world we will price each book individually as we do today. Generally e-book editions of hardcover new releases will be priced between $14.99 and $12.99; a few books will be priced higher and lower. This is a tremendous discount from the price of the printed hardcover books, which generally range from $28.00 to $24.00. E-book editions of New York Times hardcover bestsellers will be priced at $12.99 or lower while they are on the printed list. E-book editions of paperback new releases will be generally priced between $9.99 and $6.99.
For physical books, the majority of new release hardcovers are published in cheaper paperback versions over time. We will mirror this price reduction in the digital world. It is too early to estimate the timing of the price reductions for those cases in which we do not issue a paperback edition. If we do issue a paperback, we will drop the digital price to $9.99 or lower at publication date (if not before). The price differential between the book and the e-book will become smaller at the lower price points.
There has been a lot of concern from e-book readers that $9.99 books will no longer be available. Most Macmillan e-books will still be priced below ten dollars. Our e-book sales over the last year clearly indicate that only about a third of our e-book business is in the digital versions of new release hardcovers. Unit sales of older books far exceed our new release hardcover sales, so the $9.99 and lower prices will continue to represent the largest portion of our business.
In short, we will continue to do what we have always done: provide the reader with a vast selection of great books over a wide range of prices.
It remains to be seen whether or not Macmillan will indeed adjust their ebook prices over time to reflect the actual selling prices of pbooks. So far the track record is not stellar.
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I’ve come across a couple of interesting articles today that are worth sharing.
Could a Kindle tablet running Windows 7 Mobile be in the works? Last week Microsoft and Amazon announced that the two companies had entered a cross-licensing deal allowing access to each other’s patent portfolios. Terms of the agreement were not disclosed, but payment of an undisclosed amount by Amazon to Microsoft was part of the deal.
There has been much speculation on the implications of this agreement. Patents related to the Kindle, which uses Linux, were included in the agreement. Was Amazon just trying to cover its bases vis-a-vis Microsoft’s contentions that many Linux implementations violate its patents? Or is Amazon laying the groundwork for a Kindle tablet to go head to head with the iPad? Does Microsoft plan to release an ereader, and is the Courier tablet for real?
On a ZDNet blog post Jason Perlow speculates that Amazon might have plans to ditch Linux and switch to a Windows 7 powered Kindle, possibly even with a Pixel Qi display:
Imagine a Windows 7 Phone Series device scaled up to a 10.1 inch screen, with Wireless-N networking, Microsoft’s Zune/Amazon MP3 music service, Kindle’s e-book store and the Microsoft’s developer base behind it. A synthesis of the world’s largest Internet retailer, ebook reseller and the world’s largest software company.
Such a device could also go well with Amazon’s video on demand service.
More Publishers vs Ebooks
Writing in the NY Times, Motoko Rich estimates the comparative costs of publishing a pbook vs an ebook and explains the ebook pricing controversy pretty much from the publisher’s point of view.
Citing concerns that ebooks will further pressure already beleaguered brick and mortar bookstores, Rich quotes Mike Shatzkin who is CEO of a consultant company to the publishing industry, “If you want bookstores to stay alive, then you want to slow down this movement to e-books. The simplest way to slow down e-books is not to make them too cheap.”
My thoughts would be that even if we didn’t have ebooks the bookstores would sadly still be in trouble. For one thing dedicated bookstores face similar problems as other smaller specialized shops have in recent history. How can they compete with the likes of Walmart, Costco or online stores such as Amazon? By the time that ebooks become a significant enough percentage of the total number of books sold to become a serious threat to bookstores it will most likely be far too late for many of these stores anyway.
In addition people read less than before because we are so busy and there are so many other forms of entertainment competing for our scarce leisure time. While it is of little benefit to pbook stores, ereaders have the capability to help reverse the decline in reading by making it much more convenient.
Rich also mentions the common publishing industry argument that “the industry is based on the understanding that as much as 70 percent of the books published will make little or no money at all for the publisher once costs are paid.”
In other words bestsellers subsidize the rest of the books that are published. Well, if all books were published digitally this would not be an issue. No physical bookstore can afford the shelf space to stock all of those 70 percent of books that are not bestsellers. How can titles that are slow sellers even be bought if most bookstores cannot stock them? Online pbook stores can stock much more than brick and mortar stores, but there is still a limit.
Shelf space is not an issue for ebooks. The long tail made up of the 70 percent of titles that do not sell well would cost almost nothing to stock in digital format and because they could be made readily available as ebooks they would even sell more copies than they do now. Publishers could even turn their out of print books into a revenue stream by rereleasing them as ebooks.
Rich closes by quoting Anne Rice “The only thing I think is a mistake is people trying to hold back e-books or Kindle and trying to head off this revolution by building a dam. It’s not going to work.”
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In the NY Times Motoko Rich reports that Macmillan’s new DynamicBooks software will allow professors to edit and customize digital textbooks to suit their classes.
Professors will be able to reorganize or delete chapters; upload course syllabuses, notes, videos, pictures and graphs; and perhaps most notably, rewrite or delete individual paragraphs, equations or illustrations.
Macmillan will start the program with 100 titles that students can purchase through CourseSmart, dynamicbooks.com or through college bookstores. The etextbook versions should be lower priced than the paper versions. Rich cites one example: “Psychology” has a list price of $134.29 and sells for $122.73 at Barnes & Noble. The DynamicBooks version will be $48.76.
The current model for paper textbooks has many students selling their used textbooks for about 50% of retail. The stores then resale the used textbooks for about 75% of the retail price of a new copy. This goes on for several years until a new edition is published. In essence, many students are renting their paper textbooks.
The publishers get nothing from these used book sales and this is one reason that paper textbook prices are so high. Publishers also control the market by periodically releasing new editions with differing page numbers, updated (hopefully) content, etc. There are no used textbook sales with digital versions, and the publishers and authors get their cut from every sale.
DynamicBooks sounds really promising. It shows that at least some at Macmillan “get it” about ebooks. Similar principles apply to all of the other books we read. If we buy a pbook we can give or loan it to a friend, sell it as used, or donate it to the library. Neither the publisher nor the author get any revenue when we dispose of our books in such ways. With ebooks all of this is gone. If you recommend a good ebook to your friend, that person will most likely have to buy their own copy if they want to read it.
In addition, if publishers and authors were to make all of their backlist and out of print titles available in digital format they could enjoy the benefits of the long tail effect. These older and sometimes esoteric titles may not sell as many units per title, but when added up together would surely amount to a substantial sum.
Readers tend to read more with ereaders, in many cases a lot more. Publishers should be able to make up the lower per title revenue from ebooks with increased sales volume, especially as more and more people move to reading digitally. This is not to mention the cost savings of distributing ebooks; such as no warehousing, no remainders, etc. We should not be expected to pay hardcover prices for our ebooks, and probably not even paperback prices in most cases.
In any case, ebooks and digital reading devices are the future of reading, and the publishers need to figure out how to adapt and thrive with the new technology rather than worrying about whether ebooks are going to impact the sales of hardcovers – because yes they will have an impact. Just as in the past other revolutionary publishing technology impacted the practitioners of the old ways. Seen any scribes lately?
If the publishing industry does not adapt they are going to find themselves much less necessary as digital publishing and reading make it much easier for authors to self-publish.