A couple of years ago, with Amazon steadily pushing down the prices of e-books, the fortunes of the big book publishers were sinking fast. Then Apple (NSDQ:AAPL - News) came along and helped enable publishers to set their own prices for their e-books across platforms. That model, known as agency pricing, has helped keep big publishers afloat in a time of major transition. But its also sparked controversy and legal battles, including threats this week of a lawsuit by the Department of Justice against Apple and its publishing partners. So who should be able to set e-book pricesthe major publishing houses or retailers like Amazon? (NSDQ:AMZN - News)
Well, theres been some debate on that question this week at the our office, with two of our writers taking opposite sides. So we decided to let them thrash it out on the site! Below, Mathew Ingram and Laura Owen debate the merits of the agency-pricing model.
Mathew Ingram [MI]: To me, the debate boils down to whether agency pricing is a justifiable and/or sensible approach by publishers to what is happening in their industry. In a nutshell, I would argue that while it might be understandablein the sense that the Big Six are afraid of Amazons growing power in the book business, and want to protect their book margins as much as possibleit is neither justifiable nor (in the long term at least) sensible or advisable.
Theres no question that being a major player in a market that is in the process of being disrupted is not pleasant. Amazon is doing everything it can to not just drive down e-book prices but to disintermediate publishers in a number of other ways, including signing up authors to its own imprint. If you are a giant corporation that is used to controlling the marketplace to a large extentboth in terms of supply and in terms of pricingthen watching a new competitor wrest some of that control away from you is hard to do.
That said, I think agency pricing is unwiseand not just because it has attracted antitrust attention from the U.S. government and the European Union, among others, but because it isnt in the long-term interests of either readers or (I would argue) of publishers themselves. There is a growing body of evidence that lower prices can boost sales of books by orders of magnitudewhich suggests that publishers might actually be shooting themselves in the foot by trying to hang on to higher prices.
Laura Owen [LO]: I think agency pricing actually is in the interest of any reader who supports a vibrant book-buying marketplace that is not dominated by one companyi.e., Amazon.
You say that publishers are giant corporations, but Amazon is much, much larger than any single book publisheror any other book retailer. Because of that, it can undercut chains like Barnes & Noble (NYSE:BKS - News) on price. It does so consistently on print books and on e-books that are not regulated by agency pricing. In fact, Barnes & Noble CEO William Lynch has said that Barnes & Noble has been able to remain competitive in the e-book gamethe company currently has a 26 to 27 percent market share in the e-book marketbecause of agency pricing.
Some may say, So what? I dont feel any loyalty to Barnes & Noble. With the closing of Borders, though, Barnes & Noble is the only remaining bookstore in many communities. Then there are the independent bookstores, which are definitely struggling as well. Through the American Booksellers Associations partnership with the Google (NSDQ:GOOG - News) eBookstore, the indies can sell e-books through their websites. Because of agency pricing, theyre able to offer e-books from big-six publishers at the same price as Amazon. In this way, agency pricing can keep book spending within a community instead of sending it all to Amazon.
In addition, with the impending launch of sites like Bookish (which is quite delayed at the moment), book publishers are getting into selling direct to their customersa move that will be incredibly good for the business. But efforts like that wont go very far if Amazon is consistently undercutting them on price.
MI: Thats a great point, Laura. You are right that agency pricing does to some extent protect independent booksellers, or allow them to compete on more equal footing with Amazon, and I am as much in favor of a competitive bookselling marketplace as I think you are. I also recognize the fact that Amazon is a gigantic corporationand perhaps even one that is using books as a loss leader for other productsand there are risks of having a lot of market power concentrated in the hands of single entity.
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E-Book Smackdown: Who Should Control Pricing—Publishers Or Amazon?