Should readers of ebooks be taxed to subsidize stores that sell printed books?

Okay here’s an easy question to answer:

Should readers of ebooks be charged a fee that would go into a fund to subsidize bookstores that sell print books?

I hope that it’s obvious to you the answer is “hell no.”

But when I read the discussion that took place over the weekend at Paidcontent.org between Mathew Ingram and Laura Owen that is described as a “smack-down,” I scratch my head and wonder if anyone can make something more than an emotional and nostalgic argument to defend a practice (the likely illegal price-fixing scheme called “agency pricing“) that is just such a “subsidy” model.

I’d like to smack down a couple of things a lot of people seem to take for-granted about this issue —  both which are non-sense. First, that a price of $9.99 for an ebook on Amazon is without question a “loss leader” or predatory pricing. And second, that somehow, we should accept without question that Amazon is responsible for the demise of the independent bookstore and, therefore, if something could be done that would make Amazon play by some rules that would keep them from having a competitive advantage over independent bookstores, then we’d return to the the good old days.

But let’s put aside the emotional and nostalgic issues for a moment. Let’s agree on this: We all love bookstores. We all love physical books. We love cats, dogs and home-cooked meals, also.

Now. Let’s get to some facts:

First off, let’s take care of the myth that $9.99 is a predatory price for an ebook. Or that it is a loss-leader. Let me point back to a post I blogged two years ago that used data developed by Peter Olson, who was Chairman and CEO of Random House for ten years, and Bharat Anand, a chaired professor at Harvard Business School. They (did I mention Peter Olson was CEO of Random House for ten years?) crunched the numbers on ebook pricing in June of 2009 in this article and determined that ebooks could, as a stand-alone business, be priced far below Amazon’s current $9.99 pricing  (they mentioned the amount $4) and still provide the same revenue per/book to author and publisher and retailer as they have on paper books.* (Revenue losers: printers, manufacturers, transportation companies, wholesalers, storage providers.) Moreover, Olson and Anand point out that the pricing of ebooks, as a stand-alone business, can provide for a wide variety of dynamic pricing based on time-based or other economic incentives that could actually far surpass the revenue available via the current book distribution model (something akin to a consignment shop). Since their research, such advancements as Kindle Singles and event-related “instant” books have fulfilled Olson and Anand’s prediction of variable pricing strategies.

Second, let’s address the assumption that Amazon is the reason independent bookstores are hurting.

Am I the only person around here who watched the movie, You’ve Got Mail?

The movie came out in 1998. 1998! Remember the plot? If you don’t, why are you even reading this post? Back then it was Barnes & Noble and the big book publishers who were the villains of this story.

In fact, during the era of You’ve Got Mail, the independent booksellers trade association, American Booksellers,  spent $18 million suing those publishers over what the independent booksellers claimed were pricing advantages the publishers provided the big box book retailers. Back then, the predatory pricing was at Barnes & Noble. Back then, Tom Hanks was the bad guy. The suit lasted three years and ended in a settlement wherein both parties declared victory and went home — or to the movie theater to watch You’ve Got Mail.

(Just think what they could have done had the ABA not spent $18 million suing the publishers in the late 1990s and had used that money to figure out how to sell books online against the little startup, Amazon? Or better, what if they’d invested that $18 million in Amazon stock? Today, they’d have over $65 million. And if they’d waited to invest that $18 million in Amazon until its stock crashed during the dot.com bust, say, September of 2001, the American Booksellers would today have over $5 billion.)

One last fact: Even after the price-fixing issue called “agency pricing” is settled and over, nothing prevents publishers from charging Apple and Amazon and any other ebook channel that comes online between now and forever, whatever price they want for an ebook. The only thing a settlement with the Justice Department will do will prevent the publishers from dictating an ebooks retail price.

Those are facts, here are some opinions of mine:

An ebook and a print book are not the same product. There are things you can do with an ebook, you can’t do with a print book.  There are things you can do with a printed book, you can’t do with an ebook. If it were not for Amazon, I wouldn’t know this, because the major publishers have been trying to prevent ebooks from succeeding for a couple of decades. Amazon finally broke the cartel. For this we should be thanking them. Thanks, Amazon. (Now break their ridiculous pricing of audio books, since you own Audible.com)

The notion that the pricing of print books should be tied, or even compared to, the price of an ebook is ridiculous. If the author gets the same net revenue and the publisher and retailer receive the same net revenue (as Olson and Anand’s numbers show), then it seems clear that the motivation of publishers is, as the subject line of this post suggests, motivated by something other than economics.

I love printed books and independent bookstores. But the way to save them is not by setting artificially high prices on ebooks.

*My post was in response to a NY Times article on the pricing of ebooks that was based entirely on math provided by individuals who, unlike Olson, still work inside a publishing house.

  • This is the piece I wanted to write — or a way better version of what I might write — after the load of wacky stuff publishers say about ebooks that’s been making the rounds lately. So true, so true, so true!

  • Okay, Aaron. Next time, you write it and I’ll link to you. (I will note to anyone who may surf by here that you are my go-to guy on this topic.)

  • Paul

    Should people who buy healthy food be taxed to subsidize medical devices for the obese?

  • daney

    Should email users be taxed to subsidize USPS? 
    Should Prius owners be taxed to subsidize gas stations?

  • Chachi

    Car buyers should subsidize buggy whip makers. Yes, this all makes sense.

  • StephanieVoidbooks

    Love daney’s and Paul’s comments. They hit the nail right on the head.

  • They already are, it’s called medicare.