E-Book Pricing: Regulators Look Closer

When digital books cost more than printed books, it's no wonder that regulators are looking at the whole pricing model.

The roots of this pricing issue go back to the ongoing competition between Apple and Amazon, both of which are marketing hardware for reading downloaded books.

Amazon used to deeply discount digital books, offering many best-sellers at a flat $9.99. The point was to gain market share and (more important) support its Kindle e-readers. Amazon cut its own profit margins to keep those e-book prices low, and when consumers saw how many books were available for download at very reasonable prices, they began buying Kindles. And buying. And buying.

The publishers were not happy with super-low prices because (1) Amazon was controlling the retail price, rather than the publishers, and (2) publishers feared consumers would then question the pricing of printed books, which carried higher prices than digital books.

Ultimately, after a lot of behind-the-scenes discussions and some books being pulled from its e-storefront, Amazon agreed to let publishers set their own prices; the bookseller would buy e-books from them at a discounted rate of, say, 30%.

Meanwhile, the publishers were listening when Apple announced its iPad would include an e-book reading function. Who wouldn't want to reach loyal Apple iGadget owners? Better yet, Apple said publishers could set their own retail prices. Five big publishers signed on: Hachette Livre, Harper Collins, Simon & Schuster, Penguin, and Macmillan.

Now the U.S. Department of Justice is looking into e-book pricing. The European Union's regulators are also investigating whether the publishers "are engaged in illegal agreements or practices." Stay tuned for more developments.