The eBook Pricing Collusion and How You Might Win After All

Ever wonder why ebooks from the big, traditional publishers cost so much?  I mean, come on, there are no material costs.  Why does an electronic copy of a new release from one of these publishing houses cost only about a dollar less than a hardcover? If you’ve been reading ebooks for awhile, you may remember that it wasn’t always the case.  In fact, they used to all be less than $10.  What gives?

Well, back then, a publisher would offer the book to retailers, such as Amazon and Barnes & Noble, for a percentage (often 40 – 60%) off the “Suggested Retail Price.”  The retailer could sell the ebook for whatever price it wished and Amazon decided it would not price any eBook over $9.99.  Publishers could set their price higher, and Amazon might push the book as a loss-leader or with a low profit margin, but of course, it was less likely. As a result, publishers didn’t like the fact that Amazon wouldn’t charge the readers more for ebooks.

But then Apple made a deal with several of the big publishers. Apple allowed them to set the prices for the fledgling iBookstore. The big publishers loved the ability to charge the consumer more. According to biographer Walter Isaacson, Steve Jobs said, “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.”

And then what did the big publishers do?  They demanded the same terms from Amazon or threatened not to list their releases with Amazon. So now, new release ebooks from big publishers cost the reader $12 – $15.

Still, Amazon and readers may have the last laugh on this one. In response, Amazon made the same pricing structure available to self-published and Indie publisher authors. Without the overhead of colossal corporations to bog them down, the indie and self-pubbed books were made available to readers at much lower prices, with the authors seeing the same, or often better, returns per book than if they were signed with a traditional publisher who would charge many times more for the same book. This added significant fuel to the growth of the indie and self-pubbed world, providing the readers with many more options at lower costs – taking market share away from the traditional Big Six publishers.

Plus, the Justice Department has been investigating Apple and the publishing houses for antitrust violations. And this past week, we’ve heard that Justice intends to file suit against Apple and the publishers involved in the collusion.

So, by trying to force readers to pay more for ebooks than the retailer chose to charge, the publishing industry has brought the legal wrath of the government down on itself, lost lost some market share, and given rise to vast consumer choice of alternative products that are outside of its control. Perhaps they were a bit too smug in believing they could control what people want.