The proposed final judgment in the ebook case says that settling defendants may enter into contracts with ebook retailers that prevent the retailer from selling a settling defendant’s ebooks at a cumulative loss over the course of one year. What does that mean for the future of ebook prices?
Up to now you typically found the same (or very similar) ebook price from one vendor to the next. Yes, there are exceptions but it seems as though bots are constantly running to prevent a retailer from being at a pricing disadvantage for very long. Profit and loss was an afterthought, especially when it comes to a publisher’s entire list. Market share and offering the best price were all that mattered.
Bestsellers at a loss
In the future retailers need to keep a close eye on the overall profit or loss of a settling defendant’s entire list. It doesn’t mean they can’t sell certain titles at a loss; they just have to make up that loss with profitable sales of other titles from that settling defendant’s catalog.
Amazon will set the tone here and I’m sure we’ll continue seeing them offer the bestsellers at a loss. After all, Amazon is all about offering the lowest price and they certainly won’t want to damage that reputation in a highly visible area like bestselling books. Where it gets interesting is thinking about (a) how Amazon will price the rest of that settling defendant’s list and (b) what their competitors will do.
Higher long tail prices
In order to make up the bestseller losses retailers will have to turn a profit on the rest of a publisher’s catalog. But they’ll quickly run into scaling issues. For example, if you have a blockbuster that sells 10 or 100 times the volume of the next best-selling title from that publisher is the long tail long enough to bring the entire list’s performance to break-even?
How high do those long tail prices have to go to offset the accumulated loss of the blockbuster(s)? And do these price adjustments happen throughout the year so the loss doesn’t get too deep at any time or does the retailer suddenly jack all the publisher’s prices up in the last few months to avoid a cumulative loss?
Greater price discrepancy across retailers
How do the other retailers respond to this situation? It would be very easy to use bots and simply copy Amazon’s pricing and maybe that’s what happens for awhile. But since retailer volumes vary that could lead to one or more getting themselves into a cumulative loss situation that’s hard to recover from.
I think it’s more likely we’ll see larger price differences on individual titles across retailers. No longer will you be confident you paid the same price for that ebook from B&N that you would have paid at Amazon or Kobo. And the price differences are likely to be significant, particularly as retailers keep an eye on avoiding a cumulative loss for any settling defendant.
As prices vary from retailer to retailer I also think we’ll see more consumer outcry over content lock-in. Wouldn’t it stink to discover the hardware vendor you bought into is generally charging 20% or 30% more than what you’d pay for those same ebooks from another vendor? How angry will you be if you discover you have to pay twice the price for that ebook than you would have elsewhere? That’s not beyond the realm of possibilities as retailers focus on avoiding the cumulative loss.
The final judgement clearly has the potential to cause more disruption than it was originally intended to. And if my prediction of greater price variation across retailers comes true it’s only a matter of time before consumers revolt against platform lock-in. What seems like a victory for one retailer today could very well help tear down the walled garden they’re so carefully constructing.