E-book pricing schemes and the law

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    Posted: 11 April 2012 11:57 AM

    Let’s see if we can parse out the e-book market retailing.  We assume a cash only transaction between publisher and Apple.

    1. Flat fee per listing.    Apple could charge $ 1 or 1000 / book in the store.  $ 1000 is too high for independents.  $ 1 is too low for megapublishers.

    2. Flat fee per company.  Same thing.  (actually there’s a nominal fee.)

    3. Commission.  Apple gets a cut of all revenues derived from the Apple stores unless the item is listed as entirely free.  Same as iTunes store.  Same as eBay.  http://pages.ebay.com/help/sell/fvf.html
    Same as a bank loan.


    To name one publisher, Kodansha uses the store, but is not named in the suit.

    4. Publishers do not use the iTunes App Store at all.  Instead they use their own store.  Example: Microsoft Windows.  Not available on the Apple App Store.  They go their own route.  I am guessing this is the same for most of their e-book items.

    In all of the first 3, Apple provides a service and gets cash in return.

    Conclusion:

    Apple uses a combo of two and three, as least for apps.  I presume the same for e-books in the bookstore configuration.  A small fee per company per year and a commission to account for high sales volume.

    Publishers are allowed to use their own store to give away or sell their items.  The fundamental rule of Apple’s is the publisher cannot undercut the price at the Apple store.

         
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    Posted: 11 April 2012 12:03 PM #1

    A couple of Wiki link http://en.wikipedia.org/wiki/United_States_antitrust_law

    and

    Hart Scott Act

         
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    Posted: 11 April 2012 12:15 PM #2

    Does Apple restrict the number of publishers flat out ?  No.  If anything, I wish there were few publishers, for now anyway.  Too many apps and weird books out there.

    Does Apple restrict the number of books ?  No.  They want more books.

    Does Apple restrict the quality of books ?  Yes.  Some prawn types, I presume.  This is probably in accordance with laws as well as their own sense of propriety.

    Does Apple want more sales of books via its bookstore ?  Yes.

    Does Apple want more revenue of its books via the bookstore ?  Yes.  So far, Apple does not receive a gouging piece of revenues.  Its enough to cover costs and a modest profit per book, overall. 

    Does Apple make a profit on every book ?    No.  Small publishers dont make money to cover the costs to Apple.  Duh.  If they made a lot of money, then we dont call them small.  We call them profitable.

    Does Apple or DOJ or any publisher have the ideal solution for revenue sharing without using the current model ?  No.  Book quality varies a lot and people’s tastes change and finally new books come out.  The ideal solution is utopia.  We are less than that.

         
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    Posted: 11 April 2012 12:21 PM #3

    1. Do the antitrust suit violate the Constitution in some aspect ?  First Amendment ?
    2. Are there conflicting laws ?  Duh, yes.  Now we put the knife in. 
    3. What are those conflicting laws ?
    4. What remedy does the DOJ propose so as to not violate the Constitution, nor put an undue burden on Apple, the developers, the publishers and the consumer ?

         
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    Posted: 11 April 2012 12:33 PM #4

    E-books vs. paperbooks.

    1. Some paper costs more than an e-book.
    2. Paper books work when the battery goes out.
    3. Paper books do not generally have animation or clickable links.
    4. The average paper book is about 300 pages.  wild guess.
    5. The practical upper limit for paper books is 1000 pages or so and that’s the way it is.
    6. The practical upper limit for e-books is evolving.  Issues include:  how many pages does the reader want, download speed and capacity of the e-device.
    7. The bigger the book, the higher the cost, usually.  Out-of-print books ?  Duh - - they are out.  Books before 1900 ?  Often available for free.  Example:  Dog meets cat, a one page novel by Loquacious Smythe.  Newer books over 1000 pages ?  Could be a high price.  In the case of both e-books and paper books.  The publisher can raise the price.

         
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    Posted: 11 April 2012 12:41 PM #5

    My take at this early stage.  DOJ has a ways to go before they are in the same ballpark as lawsuits against Microsoft, ATT and Standard Oil.  We all know the heinous case of Sam’s Rootbeer Stand down the street from Martha’s Vineyard.  Controversy surrounds the case to this very day.

    oh—here’s the key paragraph of the DOJ suit as described by The Register

    http://www.theregister.co.uk/2012/04/11/doj_may_sue_apple_over_ebooks/

    Apple and the publishers signed contracts that took the ebook pricing model from wholesale to agency. With wholesale pricing, book resellers pay publishers a percentage of a recommended retail price and are then free to sell the book at whatever price they like. In agency pricing, the publishers set the price and the reseller takes a percentage of that price.

    So, it seems that Apple would have to set the prices for all of the books.  How about 99 cents each. Or, a fleet of Apple staffers set prices, prices fluctuate wildly during anniversary sales and when the Nasdaq takes a dive, e-book sales are suspended.

    [ Edited: 11 April 2012 12:50 PM by Tetrachloride ]      
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    Posted: 11 April 2012 01:50 PM #6

    One aspect I agree with

    When Apple came out with the iPad, it bent over backwards to appease the publishers & agreed to a deal whereby the publishers set the prices for e-books. Once the publishers had an alternative to the Kindle, the had leverage over Amazon and were able to demand that Amazon either agree to let them set the prices, or lose access to e-books.

    at Fark.com comments

         
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    Posted: 11 April 2012 01:54 PM #7

    Another alternative pricing plan. 

    Let the buyer make a genuine offer, like ebay.  The seller would have to deal with millions and eventually hundreds of millions of sales on a 1-1 basis.  Yah, right.

         
  • Posted: 12 April 2012 10:27 AM #8

    PED posted a link to the DOJ complaint on Apple 2.0: [link]

    It’s actually pretty interesting, and reads like a business school case study. There are several points the DOJ makes that I think are incorrect, but all I know is stuff I’ve read in the press and I am probably biased in Apple’s favor.

    Anyway, one point I found particularly interesting is that the DOJ makes the claim that there are no good substitutes for e-books, and therefore they should be considered a separate market. I see the same sentiment on many of the reader comments posted to various articles about this lawsuit. Mostly it’s people complaining that e-books are too expensive. That e-books should be cheap because they are digital. This is the “Napster” mentality that almost destroyed the music industry before Apple stepped in.

    Here’s where the DOJ and these commenters are wrong: a book is a book is a book. It doesn’t matter if it’s printed on papyrus, paper, or pixels. The content is what is being sold (licensed actually), not the physical storage mechanism. I would argue that paper books are the original substitute for e-books. The DOJ says that ebooks are special because you can put many more books on a portable device than you could carry if the books were physical. Is that how we are going to define a market now, using convenience or weight as the determining factors?

    Could the DOJ be completely wrong in defining the e-book market as a separate market? What do you think?

    [ Edited: 12 April 2012 10:41 AM by Francisco Geraci ]      
  • Posted: 12 April 2012 10:51 AM #9

    The DOJ’s actions are delivering the real monopoly back to Amazon.  More dumb government.

         
  • Posted: 12 April 2012 11:00 AM #10

    Francisco Geraci - 12 April 2012 01:27 PM

    Could the DOJ be completely wrong in defining the e-book market as a separate market? What do you think?

    I agree that physical and e-book are largely the same thing and not separate markets. I agree that e-boooks should be cheaper than physical because they cost nothing to manufacture, warehouse or distribute, can’t be stolen or damaged before sale. I understand that means blurb.com or similar may be the only way to get a physical copy in the future.

    I think a better model is that the owner of the book rights sells to the end user, and buys publishing, marketing and “distribution” services elsewhere. In that case, Apple is setting a price for services to publishers who sell at a fixed price from all outlets. Apple doesn’t offer services to publishers who sell at multiple prices. The whole price fixing argument doesn’t work, because no-one has physical inventory.

    I think it’s quite right that Apple is very likely to win, the publishers slightly less so:

    Here’s Why Apple Will Probably Win Its E-Book Lawsuit

    [ Edited: 12 April 2012 11:02 AM by sleepygeek ]      
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    Posted: 12 April 2012 11:44 AM #11

    That e-books should be cheap because they are digital.

    I may be incorrect about this, but I think most of the cost is in the creation, the writing and editing. A lot of the physical books I see for sale are printed on cheap stock that is not much better quality than newsprint. Furthermore they are probably printed at FoxConn. Yes, you can get books printed on quality stock, and with better binding, but you pay for that.

    Signature

    “Works of art, in my opinion, are the only objects in the material universe to possess internal order, and that is why, though I don’t believe that only art matters, I do believe in Art for Art’s sake.” E. M. Forster

         
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    Posted: 12 April 2012 11:55 AM #12

    E-book and Physical.

    1. Convenience:  A book is convenient if it is in the hands of the user.
    2. Many magazines and such are not available in e-format.  This is a restriction by the publishers usually.
    3. Making the book.  Physical book.  The author types and gets photos.  Book designer arranges.  Publisher may or may not do what it takes to sell the book.  Publisher may be stuck with stacks of unsold books.  Publisher finds ways to not pay the author.    Ebook.  Author, types and gets photos and links.  Web designer arranges the book.  (some authors do both).  Author may self-publish.  In either case, there are millions of junky books out there and thousands of books worth buying.
    4. Selling the book.  If the book is in the bookstore , then it can be sold—duh.  Physical book stores are limited in number of books.  E-book stores limits are not a big factor.  Customers can browse titles and book appearance faster in physical book stores.  A few dozen books in a 15 seconds ?  Customers in e-book store have to squint.  Browsing over images and titles is theorectically faster in e-book store but in practicality, no.  Searching for book is faster in e-book store by far.  Sending the e-book around the world is faster—depending on DRM (digital rights management).
    5. Reading the book.  e-books.  A lot of things have to go right to read an e-book.  Battery and e-device functionality, not to mention liquid spillage danger and file backup.  Physical books.  Some pages get crinkly.  For paperback novels, meh.  For art books, its a big deal.

    conclusion:  some overlap, but not to me.  For the budget I have allocated electronic vs physical.

    books—>  100 % physical at this time.  Next year, I will re-consider.
    magazines—>  zero and zero.  Budget likely to increase on both.
    newspapers.  a modest amount only.

    [ Edited: 12 April 2012 11:59 AM by Tetrachloride ]      
  • Posted: 12 April 2012 01:03 PM #13

    Aren’t e-books effectively the same as software?

    Why wouldn’t the same models apply?

         
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    Posted: 12 April 2012 01:26 PM #14

    Customers can browse titles and book appearance
    faster in physical book stores. A few dozen books in a 15 seconds ?
    Customers in e-book store have to squint. Browsing over images and titles is
    theorectically faster in e-book store but in practicality, no

    I would say it depends on the store, be it physical or E.

    In a physical store new and featured books are displayed showing their cover and they are easy to browse. However, most of the books are shelved so that all you can see are their spines and they are harder to browse. So I have my head tilted sideways 90? and have to squat down to see what is on the lower shelves.

    At the iBooks Store I can search by title and author. In the search returns you can read some reviews and download a sample. I don’t find the results hard to read, but I think that having an option to display type in larger size would be a good idea. Browsing could be greatly improved and I want more categories as well as subcatgories.

    Signature

    “Works of art, in my opinion, are the only objects in the material universe to possess internal order, and that is why, though I don’t believe that only art matters, I do believe in Art for Art’s sake.” E. M. Forster

         
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    Posted: 12 April 2012 01:29 PM #15

    d?monder - 12 April 2012 04:03 PM

    Aren’t e-books effectively the same as software?

    Why wouldn’t the same models apply?

    Some books are “apps” and they can be, usually are, more than just text. Video, sound, zoomable graphics, and such.

    Signature

    “Works of art, in my opinion, are the only objects in the material universe to possess internal order, and that is why, though I don’t believe that only art matters, I do believe in Art for Art’s sake.” E. M. Forster