What Is “Below Cost” In E-Book Pricing?

Today’s big overnight news is that Apple has settled with consumers and states in a pricing suit, the details of the settlement as yet undisclosed. Don’t worry: you won’t have to register a $10,000 windfall with the IRS because Apple asked publishers to raise prices and force Amazon to do the same in order to beat Bezos’ $9.99 stranglehold on the e-book giant. Instead, lawyers will get a lot of money and Amazon will win again.

In short, Apple was sued for working with publishers to get out of a nasty relationship with Amazon. While no one is blameless here, this lawsuit shouldn’t have happened.

But within the news is a very interesting point: It’s the idea that Amazon was selling ebooks “below cost” at $9.99 and that there was a real cost involved in selling access to a conglomeration of bits. It’s the music industry’s problem all over again: an entrenched player is sideswiped by an upstart, the entrenched player tries to compete and then realizes it has no idea what it’s doing. The result is a royal mess. But what is “below cost” when it comes to e-books. Is that a real thing?

Now Amazon is busy tearing at publishers like a velociraptor and Apple, once the publishers’ only friend, is about as interested in expanding the ebooks market as it is in building a real big screen TV. On the surface, it makes perfect sense, but Apple makes far more money selling iPhone apps and music than books, so why put in any effort?

So what do publishers want? What is “below cost” in publishing? Given falling author advances, the move from printed books to e-books, and the general lack of interest in long form reading except in young adult and niche publishing, I doubt anyone knows what a book “costs” anymore. Is it 99 cents? Is it the hardcover price? Is it a sliding scale based on time on market? I personally have been messing around with my own book with varying results but have discovered I make the most “sales” by giving the book away free and make the least money selling paperbacks or selling above $3.

As Jon Evans notes, the publishes brought many of their troubles upon themselves. By insisting on DRM they gave Amazon a lock on ebook readers. By insisting on a set price that was a few dollars above Amazon’s they walked into a buzz saw. In the end, everyone loses, especially the author.

I think publishing is important and can save itself. I don’t think it will do it on its own terms. Think about the music industry. The old music industry involved selling silvery disks to kids. Now it’s about convincing kids that 99 cents isn’t too much to pay for a single they can get for free countless other places. Evans likes the idea of a Netflix for books and I’m happy to consider that if it means people keep reading and authors get paid. What I don’t like is the idea that short-sighted, non-technical booksellers will eventually, if they’re not careful, destroy the book industry. At that point the idea of “below cost” is moot.