Dispatches from the Digital Revolution

The agency model lawsuit and the future of book pricing

Still no answers from the lawsuit over the agency model of ebook pricing.

Although multiple class-action lawsuits had been filed over the year, on December 9 the judicial panel on multidistrict litigation ordered the consolidation of the suits to “eliminate duplicative discovery; prevent inconsistent pretrial rulings, particularly with respect to class certification; and conserve the resources of the parties, their counsel and the judiciary.” The agency model is also under scrutiny in Europe.

But with no date yet set for a hearing, that leaves us all free to speculate on who’s the villain in this scenario. Should we blame Steve Jobs and Apple for scheming with publishers in a smoke-filled back room, demanding higher prices on ebooks, and damaging consumer welfare? Or do we blame Amazon, as Jeff Bezos twirls an imaginary mustache, hell-bent on the destroying the publishing industry as we know it? Just who is tied screaming to the tracks, here?

And what does it mean for the future of book pricing when one side is called right?

Up until the lawsuit was filed, the agency model seemed fairly benign.

In an effort to stop Amazon from gaining a monopoly in the ebook market, Apple and some book publishers set forth the agency model of ebook pricing, establishing fixed prices for the digital versions of their books that would correspond with the price of the print books.

Under the wholesale model, which allowed Amazon to determine its own price for ebooks (usually $9.99), the etailer was actually losing money on every ebook sold. It owed more to the publisher than it made on the sale. So the agency model seemed like it could have been a win-win for retailers and publishers alike. But, of course, that wasn’t the end of the story. And we wait for the hearing to decide whether or not these fixed prices are, in fact, lawful.

So what if the agency model is deemed correct? Then publishers can rest easy, at least for a while. They can be assured that their products are fetching a price that corresponds to the amount of work that the company put into the book. Paper only costs so much, but good work behind the scenes to create a quality book is still rewarded.

But if the agency model is deemed unlawful, and Amazon is allowed to set its own price for all ebooks, we’re back to square one. Amazon’s low ebook prices lead to loss of sales for other retailers, driving many independents out of business, and probably forcing Barnes & Noble and Apple to lower their ebook prices just to compete.

More worrisome than Amazon’s looming monopoly, though, is the consumer mindset that it might lead to.

Already, people want to pay less for books.

When you buy a print book, some of what you pay for is fairly obvious: the paper, the binding. Some is less obvious: the warehousing, the cost of shipping the book from printer to retailer. Some of it, I bet, is stuff that most consumers never consider: the cost of editing and production, marketing, publicity… There’s a reason that books are priced the way that they are, and making them an attractive bargain to consumers hasn’t been a large part of that reasoning.

But in an age where many consumers can get lots of stuff for free online, ebooks are probably suspect to many readers. They aren’t paying for paper or shipping. So higher ebook prices don’t seem logical, even if they correspond to the price of the print book. And if that argument wins out, it may call into question the $29.99 price tag on the hardcover. We quickly get used to content being cheap or free, so much so that we become unwilling to pay what that information is actually worth.

Remember the outcry when the New York Times backtracked and put up a paywall for a digital newspaper that had once been free? Never mind that, under that model, they were bleeding money, putting all of us in danger of losing a reputable and established source of news and opinion. People weren’t willing to start paying more for something that had once been cheap. To them, it simply wasn’t worth it. (Although I wonder what might have happened if the Times had been forced out of business and we were left with USA Today and the LA Times for information… shudder.)

As an aspiring member of the book publishing industry, and a book buyer to boot, I’m ambivalent about all this. I’m worried that low book prices might lead to a monopoly for Amazon and a world where the publisher, as an arbiter of taste and quality information, doesn’t mean much.

But I’m still an unpaid publishing intern and a grad student. As a strapped-for-cash book buyer (who must admit to many, many book purchases at Target and Amazon), I have to say that low prices are probably the only reason I’m able to buy 10 titles a month. The publishing industry has to make money, and reasonable prices are part of that. But if it ignores consumer demand completely in favor of a pricing model that honors its own needs, will people continue to buy books from established houses? Or will they lose out to blogs, self-publishing Kindle wonders, and cheapo paperbacks from Amazon Publishing?

In a lawsuit over big companies conspiring or retailers monopolizing, I think we might need to pay more attention to consumers. After all, it’s the book-buying public (not publishers and not Amazon) who will have the ultimate say in what prices will work for ebooks, regardless of what the court decides.


This entry was posted on December 31, 2011 by in Business, Opinion and tagged , .

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