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The price is right? The debate over ebook pricing

By Dan Moren, Lex Friedman
April 12, 2012 12:47 PM ET

Macworld - If the Department of Justice has its way, ebook prices are about to drop.

The DOJ says that Apple and various major publishers colluded on ebook pricing, each agreeing that the publishers would embrace an agency model for ebooks--one where the publishers set the price for the ebooks, with the retailer taking a percentage. That was meant to replace the wholesale model, where sellers like Amazon sold ebooks at prices they set themselves, paying publishers flat rates. Macmillan CEO John Sargent says there was no collusion, and that he "made the change to support an open and competitive market for the future."

Printed books are more lucrative for publishers. Those publishers thus fear that lower ebook prices--and the associated lower margins--could negatively impact their earning potential if consumers continue to switch from real books to electronic ones. And that trend, of course, affects brick-and-mortar bookstores, too.

Senior editor Dan Moren thinks that's troublesome. Staff writer Lex Friedman thinks it's a good thing for consumers. Let's see who's right.

Lex Friedman: I've had a couple books published, and have a third on the way. Lower ebook prices are bad for me professionally. As a consumer, though, I like paying $9.99 for new books, just as I enjoy paying a buck for a new song. I read more after I bought my first Kindle, because buying three new bestsellers for the price of one hardcover appealed to my thriftiness.

Dan Moren: It's not that I don't like ebooks; I do. I own a Kindle in addition to my iPad and my iPhone, and I've read more than few books on them. Technology--it is grand! And while a $9.99 ebook price may be good for consumers looking to buy ebooks, it's the idea of this becoming a race to make the cheapest ebook that worries me. After all, Amazon operates on the principle of selling its ebooks at a loss to bolster support for its Kindle platform. Which means that competitors have to drop their prices lower in order to keep up.

LF: You're not wrong, and that's a valid concern. But I don't believe that Amazon can truly sell ebooks as a loss-leader forever; I'm of the belief that Amazon sells its cheaper e-ink Kindles at a loss, too--at some point, something's gotta give.

DM: In which case, the question becomes: If prices just go back up above $9.99, what have we really gained--except putting Amazon's competitors out of business and trading one monopoly for another?

LF: I misunderstood you. My point is, I don't think prices will race far below $9.99. If competitors try to undercut that price point, that's where I think the market gets unsustainable. But a $9.99 baseline strikes me as fairly akin to the 99-cent rate on the bulk of MP3s in the market. Yes, Amazon sells some music for a little less than iTunes--but not by much. And both Amazon and iTunes sell tracks at $1.29, too. But a 99-cent basepoint for music works fine for me, even though it means fewer brick-and-mortar music stores have survived, and that artists have turned to live performance and direct sales as income boosters. A similar path for authors--fewer bookstores, more direct connections with (and sales to) their readers--suits me just fine.

Reprinted with permission from Macworld.com. Story copyright 2012 Mac Publishing, LLC. All rights reserved.
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